Buying your next home before your current one sells is one of the most common timing problems in Australian property. The new place is available now; the old one is not sold yet. A bridging loan is the product designed to hold both positions simultaneously while the gap closes. This article covers how consumer bridging works — the mechanics, the costs and what can go wrong — for homeowners moving from one property to the next. If you are exploring bridging in a development or commercial context, that is a different product; see our article on bridging finance vs development finance.
Peak Debt and End Debt
Two numbers matter in bridging finance: peak debt and end debt.
Peak debt is the most you will ever owe at one time. It is the sum of the loan on the new property plus the remaining balance of your existing mortgage, plus any interest that capitalises during the bridging period. This is the number that determines how much the lender is exposed to at the worst moment — when you own two properties and neither has settled.
End debt is what remains after the sale proceeds from the old property are applied to the peak debt. It is the ongoing mortgage on the new property that you will be servicing long-term. Lenders assess whether your income can comfortably service the end debt as part of their approval process.
The gap between peak debt and end debt is what bridging finance is managing: it holds the difference while the old property moves through the sales process and settles.
An Illustrative Example
The following is a simplified illustrative scenario using round numbers. It does not represent a real transaction or a loan offer.
Suppose an owner has a current home with a $400,000 mortgage remaining. They buy a new home for $900,000. The lender funds the new purchase, bringing total debt to $1,300,000 — this is the peak debt. The owner's existing home goes to market and sells for $750,000. After agent fees and costs (say $20,000), net sale proceeds of $730,000 are applied to the peak debt. The remaining $570,000 becomes the end debt — the ongoing mortgage on the new property. The bridging loan has served its purpose and closed.
The complicating factor in practice is that during the bridging period — the weeks or months between buying the new property and settling on the old one — interest accrues on the full peak debt. In most consumer bridging structures, that interest is not paid monthly but capitalised: added to the loan balance. The total debt therefore grows each month until the old property settles.
How Lenders Size a Bridging Loan
Lenders size bridging facilities primarily against the combined loan-to-value ratio across both securities — the existing property and the new one. The peak debt cannot exceed the lender's maximum combined LVR, which commonly sits at 80% of the combined value of both properties (indicative as at June 2026, varying by lender).
The valuation of the existing property is important, and lenders commonly take a conservative view of the likely net sale proceeds. They are aware that the property has not sold yet and that the actual sale price may differ from the current market estimate. Some lenders shade the value of the existing property when calculating the LVR — applying a discount to account for the uncertainty of an unsettled sale.
To understand whether a bridging loan is feasible at the numbers involved, it is worth sketching the combined position before approaching a lender:
| Component | Illustrative figures | Notes |
|---|---|---|
| Value of existing property | $800,000 | Lender may apply a discount |
| Remaining mortgage on existing property | $400,000 | Part of peak debt |
| Purchase price of new property | $900,000 | Part of peak debt |
| Peak debt (before capitalised interest) | $1,300,000 | $400k + $900k |
| Combined property value | $1,700,000 | $800k + $900k |
| Combined LVR at peak | 76% | $1.3M ÷ $1.7M — indicative |
| Estimated net sale proceeds (existing) | $730,000 | After costs |
| End debt | $570,000 | Peak debt less sale proceeds |
All figures illustrative only. The feasibility of a bridging loan depends on the actual LVR, income to service the end debt, lender policy and the specific properties involved.
Capitalised Interest and Why the Clock Matters
Because most consumer bridging loans capitalise interest rather than requiring monthly payments during the bridging period, the total cost of the facility grows the longer it runs. Interest adds to the balance, which means the next month's interest accrues on a slightly larger base — a compounding effect that accelerates the longer the bridging period extends.
This is why the typical bridging term is short. Most lenders offer consumer bridging terms of 6 to 12 months (indicative as at June 2026). Some allow extensions, but extensions typically come with increased scrutiny and may require a new valuation of the unsold property.
The practical implication is straightforward: every month the old property does not sell costs money — not in a visible monthly repayment, but in a growing loan balance that reduces the net equity position when the property does eventually settle. A bridging loan that runs for 12 months will cost materially more in total interest than one that runs for three, even at the same rate.
Closed vs Open Bridging
Lenders distinguish between two types of bridging position based on whether the existing property is already under contract:
Closed bridging means the existing property is sold — it is under a binding contract with a confirmed settlement date. The lender knows exactly when the bridging period will end and how much will be repaid. This is lower-risk for the lender and typically attracts a tighter assessment.
Open bridging means the existing property has not yet been sold. The lender does not know when or for how much it will sell. Open bridging is treated as higher risk. Lenders commonly require a lower combined LVR for open positions and may apply a more conservative valuation to the unsold property. Some lenders will only offer open bridging to borrowers with a strong equity and income position.
Most borrowers enter the bridging process on an open basis — they need to buy before they have signed up a buyer for the old place. Moving to closed bridging, by exchanging contracts on the old property before settling on the new one, reduces lender risk and can improve the terms available.
Costs Beyond the Rate
Bridging loans typically carry a higher interest rate than a standard variable mortgage, reflecting the added complexity and short-term nature of the product. But the rate is not the only cost. Several additional items affect the total cost of a bridging arrangement:
- Two valuations. The lender will require a valuation of both properties — the new purchase and the existing property. Each valuation comes at the borrower's cost, and if the bridging period extends and a revaluation is required, that adds a third or fourth fee.
- Application and establishment fees. Bridging loan establishment fees tend to be higher than for standard mortgages, reflecting the additional work in assessing a two-property position.
- Exit or discharge fees. Some lenders charge a fee on closing the bridging facility, on top of the standard mortgage discharge costs on the existing loan.
- Lenders mortgage insurance. If the combined LVR at peak debt exceeds the lender's LMI threshold, LMI may be payable — a significant cost on a large peak debt.
Taken together, the total cost of a bridging arrangement — rate, fees, two valuations, and potentially LMI — is substantially higher than simply holding a standard mortgage. Whether that total cost is justified depends on the alternative: what does selling first and renting, or missing the new property, actually cost?
The Risks to Plan For
Bridging loans work well when everything goes to plan: the old property sells reasonably quickly at or near the expected price, the bridging period is short and the end debt lands at a serviceable level. The risks arise when any of those assumptions do not hold.
The sale takes longer than expected. In a slower market, a property can take months to find a buyer. Each month of additional bridging adds to the total cost and reduces the net proceeds available to reduce the end debt. If the bridging period approaches or exceeds the lender's maximum term, there is the additional stress of a forced sale to meet the loan deadline.
The sale price disappoints. If the old property sells for less than the figure used to calculate the end debt position, the end debt will be higher than planned. The borrower needs to be comfortable servicing a higher ongoing mortgage than expected, or have cash reserves to top up the shortfall.
Double moving costs. If the sale and purchase do not align closely and the borrower needs to vacate the old property before the new one settles, temporary accommodation and double-moving costs add to the total outlay.
Alternatives to Bridging
Bridging finance is one solution to the buy-before-you-sell problem, but it is not the only one. The alternatives each have their own trade-offs:
- Subject-to-sale offers. Making an offer on the new property conditional on selling the existing one. Some vendors will accept this — particularly in slower markets — but in competitive conditions a subject-to-sale offer is often not accepted.
- Selling first and renting. Settling the old property before buying the new one removes the bridging problem entirely, but means renting in between — with the uncertainty of finding the right new property under time pressure and the cost of a short-term rental.
- Deposit bonds. A deposit bond is a financial instrument that replaces the cash deposit required at exchange. It allows a buyer to exchange on the new property without having the deposit cash available yet — useful if equity in the existing property is not accessible until settlement. A deposit bond is not a loan and does not fund the purchase; it covers only the deposit obligation at exchange. It is a conceptual option worth exploring with a lender or financial adviser.
Each alternative requires the same underlying question to be answered: what is the real cost, financial and practical, compared to paying for a bridging facility?
Frequently Asked Questions
What is the difference between peak debt and end debt on a bridging loan?
Peak debt is the maximum amount owed during the bridging period — the new property loan plus the existing mortgage plus any capitalised interest. End debt is what remains after the old property sells and the proceeds are applied: typically just the ongoing mortgage on the new property. Lenders assess serviceability on the end debt figure.
How long does a bridging loan typically run?
Indicatively 6 to 12 months for consumer bridging loans as at June 2026, though some lenders offer up to 12 months with the possibility of extension. The term is designed to cover the period between purchasing the new property and settling on the sale of the old one.
What is the difference between open and closed bridging?
A closed bridging loan has a confirmed sale — the old property is under contract with a fixed settlement date. An open bridging loan does not yet have a confirmed buyer. Lenders treat open bridging as higher risk and typically price it accordingly or require a lower combined LVR.
Does interest capitalise on a bridging loan?
Yes, in most consumer bridging loan structures the interest that accrues during the bridging period is added to the loan balance rather than paid monthly. This keeps cash flow manageable while both properties are held, but it means the total debt grows each month until the old property settles.
Modelling Your Bridging Position
The numbers in a bridging scenario interact in ways that are not always intuitive — especially once capitalised interest is factored in across different sale timelines. The free Bridging Loan tool at lenderbridge.com.au/bridging lets you enter your current mortgage balance, the new purchase price, an estimated sale price for the existing property and a bridging period, and see how the peak debt, end debt and total interest cost move with each variable. Use it to stress-test the scenario before committing.
General information only, not credit assistance or financial product advice. LenderBridge connects borrowers and lenders; it does not advise or recommend. Check figures with your lender and the official source.