Key things to know about bridging loans

Here’s an overview of the top things you need to know about bridging loans, including how they work and things to consider. We’ll bust some myths and share how to know whether it's the right option for you.

What is a bridging loan?

A bridging loan, also known as bridging finance, is a short-term loan that could help you buy your next home up to 12-months before you sell and settle on your current property. It allows you to access the equity in your existing home as security for the deposit towards your new dream home.

The interest rate for a bridging loan is the same competitive standard variable rate as for a traditional home loan. And during the bridging period your repayments on your bridging loan are interest only.

You can get bridging finance pre-approved

Just like with a traditional home loan, you can get your bridging finance pre-approved so you can be in a great position to proactively buy before your sell.

How it works

A bridging loan combines the loan for your current home, with the loan needed to buy your new home. This loan can be up to 80% of the value of your new home (known as Loan to Value Ratio or LVR)^disclaimer. You’ll have up-to 12 months to sell and settle on your current house, and when you do, typically, the proceeds from this sale pay down the bridging loan, leaving you with only repayments to make for the loan on the house you bought.

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Do you need a deposit for a bridging loan?

If you have equity in your current home you may be able to access it to pay the deposit on your new home. Additionally, you may be able to add upfront costs on your new home such as stamp duty and legal fees to your ongoing loan (if there is enough equity based on the combined values of your current home and new home).

Is a bridging loan more expensive than a traditional home loan?

Some people think the interest rate for bridging finance is higher than a traditional home loan, but it’s actually the same standard variable interest rate. And your repayments on the bridging loan will be interest only during the bridging period (a maximum of 12 months). You only need the bridging finance while you choose to keep both houses.

When is bridging finance a good option?

Bridging finance could be a great option if:

• You find your dream house, before you’re ready to sell.
• You want to avoid the possibility of having to rent between buying and selling
• You’re wanting the time and finance to renovate before selling
• You want to avoid the stress of trying to align settlement dates

What you need to consider

To be eligible for bridging finance, you’ll need to be able to make repayments that cover the loan for your current home and the new home you buy. You may be asked to hold savings to ensure you can cover these repayments. During the bridging loan period, repayments on the loan are interest only.

You’ll also need to be confident you can sell your home and pay down the bridging loan within 12 months. Interest is calculated daily and charged monthly, which means the longer it takes you to sell your current property, the more interest you will pay. If, during the bridging period, you do not believe you will be able to sell your current home, then you should contact your lender or broker as soon as possible. They will help you understand your options.

You’ll need to factor movements in the housing market as they may affect the sale price you can achieve for your current home. This may impact your ongoing loan on your new home.

To sum up 

• A bridging loan is a short-term loan that can help you finance the purchase of a new property before you sell your current property.
• You’ll have up to 12 months to sell your current property.
• Your bridging finance can be pre-approved.
• The interest rate for bridging finance is the same standard variable rate as a traditional home loan.
• A bridging loan is not always suitable, or available to all customers. You should discuss your eligibility and suitability with your home lending specialist or broker.

An ANZ Home Loan Specialist is available to talk through all the benefits, considerations and options so you can make a balanced decision on what is right for you.