Bridging Loans Made Easy: What Are They and How Do They Work?
Rapid price growth and stiff competition in Sydney’s property market can leave buyers and sellers racing against time. Bridging loans offer a handy solution for homeowners or homebuyers facing the gap between an offer on a new home and the sale of their current property.
Essentially, a bridging loan is a temporary loan that fills the finance gap until an existing property sells, helping to smooth the transition in a fast-moving market. This approach can prevent missed chances on dream homes or delays in settlement.
In this guide, we’ll explore how bridging loans work, who they suit best, and key considerations to keep in mind when applying for one.
Ready to bridge the gap on your next property purchase? Newcastle mortgage brokers are here to guide you through every step of the bridging loan process. Call us now on
(02) 4920 6468
or visit
www.mortgagebrokersnewcastle.com.au to get started!
What Is a Bridging Loan?
A bridging loan is a temporary loan that gives you money to buy a new home before selling your current one. It's secured against your existing property and usually repaid when that property sells.
Key Differences from a Traditional Home Loan
- Bridging finance is designed for short-term use (usually 6–12 months)
- Often has interest-only repayments during the bridging period
- Higher interest rates than standard home loans
- Secured against two properties: the one you own and the one you're buying
Open vs Closed Bridging Loans
- Open bridging loans don't require you to have sold your current home yet
- Closed loans are for those with a signed contract of sale and a clear end date
Each has different risk levels and affects the loan approval criteria.
How Do Bridging Loans Work?
A bridging loan is a short-term facility that “bridges” the gap between buying your next home and selling your current one.
Instead of waiting for your existing property to sell, the lender advances funds secured against both homes. You typically pay interest (often rolled up into the total loan) for the loan’s term, usually 3 to 12 months, and settle everything once your original property is sold.
Sample Scenario in Sydney
Imagine you own a unit in Pyrmont valued at $900,000 and want to move to a house in Rozelle priced at $1,350,000. Your Pyrmont unit hasn’t sold yet, but you've found your dream home in Rozelle.
You arrange a bridging loan that lends you the $1,350,000 purchase funds, using both properties as security. Once your Pyrmont unit sells, say six months later, you repay the bridging loan in full.
Sample Calculation Breakdown
Suppose your bridging loan details are:
- Loan principal: $600,000 (partial draw against equity)
- Interest rate: 8% per annum
- Term: 6 months
- Establishment fee: $1,000
- Monthly management fee: $200
Your costs would be:
- Interest cost:
- $600,000 × 8% × (6/12) = $24,000
- Establishment fee:
- $1,000 one-off
- Management fees: - $200 × 6 = $1,200
Total bridging cost: $24,000 + $1,000 + $1,200 = $26,200
At sale, you’d repay:
- Loan principal: $600,000
- Accumulated costs: $26,200
- Total repayment: $626,200
This structure lets you move quickly in Sydney’s fast-moving market without waiting for your first home to sell.
Navigate the complexities of bridging finance with confidence. Newcastle mortgage brokers will handle the paperwork, negotiate the best rates, and ensure a smooth settlement. Call us for a free chat at (02) 4920 6468 or explore your options at www.mortgagebrokersnewcastle.com.au.
How to Apply for a Bridging Loan?
Here’s a quick guide to applying for a bridging loan. Follow these simple steps to secure the finance you need:
1. Assess your needs and eligibility
Estimate how much you need to bridge the gap and check your equity against both properties. Make sure your credit history and income meet the lender’s basic requirements.
2. Gather required documents
Pull together payslips, tax returns, bank statements and details of both properties (valuations, mortgage statements). Having everything on hand will speed up your application.
3. Compare lenders and products
Mortgage brokers can research banks and specialist lenders on your behalf, uncovering competitive rates, fees and turnaround times. With their expertise in bridging finance, they’ll ensure transparent fee structures and guide you to the best solution.
4. Choose your repayment method and loan term
Decide whether to roll interest up into the loan balance or pay interest monthly (“service” payments). Typical bridging loan durations run from 3 to 12 months, so pick a term that matches your anticipated sale timeline.
5. Submit your application and settle
Complete the lender’s application form, upload your documents and sign the loan contract. Once approved, funds are released at each settlement: first for your new purchase, then repaid when your existing home sells.
How Are Funds Released?
Once your bridging loan is approved, lenders typically structure the advance in two stages:
- New‐purchase settlement:
The lender pays the purchase price (or your required deposit/balance) directly to your solicitor or conveyancer at the new property’s settlement.
- Existing‐home sale: When your current property sells, the sale proceeds are used to repay the loan principal plus any accrued interest and fees.
Some lenders offer a single drawdown option that automatically allocates funds and rolls up interest, but most opt for the two‐stage release to align with each settlement event and minimise your out‐of‐pocket costs.
When Should You Use a Bridging Loan?
Timing can make or break your property move. Here are the key scenarios where a bridging loan could be your ideal solution.
Buying Before Selling
You want to buy now and sell later. This is the classic use case for a bridging loan.
Property Auctions
In fast-paced auctions, you may need funds quickly. A bridging loan gives you time to sell your home after securing your next one.
Investment Property Opportunities
Keen on an investment property but still waiting on equity to free up? Bridging finance helps you move quickly in a tight real estate market.
Construction or Renovation
Some buyers use
construction loans or bridging loans to buy land and build while still owning another home.
Business or Emergency Cash Flow
Although less common, bridging loans can cover temporary expenses like relocation costs, financial hardship, or business-related needs.
Pros and Cons of Bridging Loans
Bridging loans are ideal for homeowners with solid equity or investors who must act fast in a hot property market. Before you apply, weigh the advantages and drawbacks to see if this short-term financing aligns with your situation.
Pros
- Speed to settlement: Funds can be released within days, keeping you competitive.
- Chain-free buying: You’re not held up by the sale of your existing home.
- Flexible repayment: Roll interest into the loan or service it monthly to suit cash flow.
- Equity leverage: Unlock value in your current property to fund your next purchase.
Cons
- Higher cost: Interest rates and fees run well above standard home loans.
- Short term: You’ll need to sell your existing property (or refinance) within 3–12 months.
- Exit risk: If your home doesn’t sell on time, you may face dual repayments or extensions.
- Complex setup: More paperwork, valuations and lender conditions than a regular mortgage.
Don’t let timing hold you back. Our Newcastle mortgage brokers specialise in finding flexible bridging loans tailored to your needs. Speak with our brokers today at (02) 4920 6468 or head to www.mortgagebrokersnewcastle.com.au to explore your options.
Frequently Asked Questions (FAQs)
Are bridging loans only for property?
Mostly, yes. But some people use them for business needs or relocation expenses.
How long does it take to get a bridging loan?
Many lenders can approve it within 48 to 72 hours. Some even faster.
What's the typical interest rate on a bridging loan?
Around 0.5 per cent to 1.5 per cent per month, depending on the lender.
How does a bridging loan work?
It covers the cost of buying your new home while you wait to sell your old one. You repay the loan once your sale is complete.
What are the downsides of a bridging loan?
Short loan terms, higher interest rates, and the risk of not selling your home on time.
What are the risks of a bridging loan?
You may not sell your current property quickly, leading to extra interest costs or missed repayments.
How much deposit is required for a bridging loan?
If you have enough equity, no cash deposit may be needed. Some may use a deposit bond or offset account to manage this.
Wrapping It Up
Bridging loans can give you the freedom to act fast in a hot market, and our mortgage brokers know exactly how to make it happen.
From comparing interest roll-up versus service payment options to lining up lenders with the quickest turnaround, we’ll guide you every step of the way, from application right through to settlement.
We’re based in Newcastle and proudly support homeowners across New South Wales, tailoring each solution to your timeline and budget. Book your free consultation today and let our expert brokers handle the details of your bridging loan so you can focus on your next move. Call us on
(02) 4920 6468 or visit www.mortgagebrokersnewcastle.com.au to get started.
