If you’re upgrading your home or buying an investment property, timing matters. You may have found the right property before selling your current one. Or you may want to move quickly without being forced into a rushed sale.
That’s where a bridging loan can help. Bridging finance offers a practical solution to a common timing problem. But like any financial product, it requires careful consideration and expert guidance.
What is a bridging loan?
A bridging loan is short-term finance that “bridges” the gap between purchasing a new property and selling your existing one.
The loan typically releases equity in your current home to fund the deposit and purchase amount for your new property. During this period – usually 6 to 12 months – you'll be holding two loans simultaneously.
Once your existing property sells, those proceeds repay the bridging loan, leaving you with your standard mortgage on the new property.
How does a bridging loan work in practice?
When you apply for bridging finance, your lender will typically assess three factors:
1. Your current debt: The remaining balance on your existing mortgage.
2. The new purchase price: The cost of the property you are acquiring, including stamp duty and legal fees.
3. Your peak debt: The total amount of debt you’ll hold during the bridging period. This is the sum of your current and new loans.
Once your original home sells, the remaining balance becomes your "end debt", which is then managed as a standard long-term mortgage.
During the bridging period, you have options for managing repayments. Some borrowers choose interest-only repayments to minimise monthly expenses while carrying two properties.
Some lenders also allow the interest on the bridging portion to be "capitalised". This means you do not make monthly payments on the new loan. Instead, the interest is added to your peak debt and settled when your current home sells. This can be a good option for buyers who want to avoid the burden of increased monthly expenses during a relocation.
What types of bridging loans are available in Australia?
Lenders generally offer two types of bridging loans:
1. Open bridging loans
This is used when you haven't yet sold your current property or don't have a fixed settlement date. These loans usually have a maximum term of 6 to 12 months. Because of the additional uncertainty, lenders may charge higher rates and maintain stricter eligibility criteria.
2. Closed bridging loans
This applies when you've already exchanged contracts on your existing property with a confirmed settlement date. Because the lender knows exactly when they'll be repaid, these loans can be considered lower risk and often attract slightly better terms.
What are the benefits of a bridging loan?
Avoid renting
Selling your home before buying could mean you will need to move into a rental property. This has two disadvantages. First, you will need to relocate twice in a short period, which can be stressful, time-consuming and expensive.
Second, you will incur rental costs, which, at Melbourne’s current median weekly rent of $624 (according to Cotality, as of January 2026), can add up quickly.
Secure the right asset
High-quality properties in sought-after suburbs are often tightly held. A bridging loan ensures you do not lose your "forever home" while waiting for a buyer for your current one.
Undertake renovations
If your new home requires minor updates before you move in, a bridging loan gives you a window of time to complete the renovations while still living in your original residence.
What are the risks of a bridging loan?
Interest costs
If your property takes longer to sell than expected, the interest costs can accumulate.
Market fluctuations
If the market softens and your home sells for less than anticipated, your end debt will be higher than originally planned. This risk is more pronounced during periods of market decline.
Take Melbourne’s recent downturn over 2024, for instance. Cotality data show median days on market in Melbourne increased from 31 to 38 days over the course of 2024, adding pressure to buyers who needed to sell their existing homes first.
Over the same period, average vendor discounts widened, which would have increased the risk of achieving a lower-than-expected sale price.
Compounding debt
Because interest can be capitalised rather than paid monthly, your total debt grows over time, reducing the final equity you get once the sale of your original home is finalised.
What else do you need to consider before applying for a bridging loan?
Application fees and costs
Bridging loans may include upfront costs like application fees, valuation fees on one or both properties and legal costs. It’s important to factor these into your overall budget, not just the interest rate.
Current market conditions
Bridging loans work well in markets where properties are selling within a predictable timeframe. If buyer demand is patchy or days on market are increasing, the risk of an extended bridging period rises. Understanding local market conditions before committing is critical.
Melbourne’s market heated up over 2025 – Cotality data showed price growth of 4.8% over 2025 – with more growth expected in 2026.
Median days on market fell from 38 at the end of 2024 to 29 by the end of 2025, while average vendor discounts narrowed from 3.7% to 2.9%.
In a fast-moving market, properties may sell more quickly and closer to asking price, potentially reducing the bridging period and lowering interest costs. However, buyers need to act decisively, as competition is higher and timing between buying and selling becomes more critical.
Clear exit plan
A bridging loan should always have a defined exit plan. This usually means the sale of your existing property, but lenders will want confidence that this outcome is achievable within the agreed timeframe.
Are there alternatives to bridging loans?
Bridging loans aren't the only solution to property timing challenges.
Some buyers negotiate extended settlement periods with vendors, creating additional time to sell their existing property. Others use deposit guarantees where family members provide security against their own property for your deposit.
Another option is equity release through refinancing your existing loan. This can provide deposit funds while giving you more time to sell under less pressure. This approach means carrying higher debt but avoids the tight timeframes and potentially higher rates of bridging finance.
How AXTON Finance can help
Every property situation is unique. This is where specialist mortgage brokers add value. We can assess your specific circumstances, compare lender policies and rates, structure the loan to minimise costs and risk, and coordinate timing between purchase and sale.
At AXTON Finance, we understand the local market dynamics, maintain relationships with lenders offering competitive bridging finance and can guide you through the process from initial assessment through to settlement.
If you’re considering a property purchase but are concerned about timing, AXTON Finance can help you assess whether bridging finance is the right fit. Contact the team for a confidential conversation about your options. Call 03 9939 7576, email getabetterrate@axtonfinance.com.au or get in touch today.