How Much Can You Borrow with a Bridging Loan?
If you are planning to buy a new home before selling your current home, bridging loan can be the solution. What factors affect your eligibility and How much can you actually borrow? Let’s break it down.
What determines your bridging loan amount?
Bridging loans are assessed differently from standard home loans. Lenders look at the full picture of your financial situation and property portfolio. Here are the key factors:
- The Estimated Sale Price of Your Current Property
Lenders will assess how much your current property is expected to sell for. This is crucial in determining how much equity you have to apply towards your new purchase. - The Purchase Price of Your New Property
You’ll need to know the cost of your new home and how much you can borrow based on your deposit and equity. - Your Existing Mortgage
If you still owe money on your current property, your existing mortgage will need to be factored into the loan calculation. Lenders will calculate how much additional borrowing you need to cover the purchase of your new property. - Your Borrowing Capacity
Lenders will assess your ability to repay both the bridging loan and your existing mortgage. Your income, debts, and living expenses will all be taken into account. - The Value of Your Property Portfolio
If you own multiple properties or have substantial assets, these will also be considered when determining how much you can borrow.
Understanding Peak Debt vs. End Debt
A key concept in bridging finance is the difference between peak debt and end debt:
- Peak Debt: This is the total amount you owe at the peak of the bridging loan. It includes the loan amount for your new home, your existing mortgage, capitalised interest. At this point, you’re holding two loans — one for the new property and one for the existing one.
- End Debt: Once your existing property is sold, the proceeds are used to reduce the total debt. Your end debt is what remains after the sale of your current home.
For example, if you owe $200,000 on your current home and you take out a bridging loan for $500,000 to purchase your new property, your peak debt would be $700,000. When you sell your old property for $250,000, your end debt would be reduced to $450,000.
What are the costs of Bridging loan?
Interest rates on bridging loans tend to be higher than standard home loan rates due to the short-term nature and the increased risk for lenders. Rates can vary depending on the type of bridging loan, the lender, and the specifics of your financial situation.
Additionally, keep in mind the fees associated with bridging loans, which might include:
- Application Fees
- Valuation Fees
- Settlement Fees
- Exit Fees (if applicable)
- Ongoing Fees (if the loan extends beyond the expected term)
Interest on a bridging loan is usually capitalised, meaning that you won’t make regular repayments on the loan during the bridging period. Instead, the interest is added to the loan balance and paid off when your existing property is sold.
Loan Term and Repayment Options
The term of a bridging loan is typically short-term, ranging from a few months to around 12 months. The goal is to provide you with enough time to sell your property and repay the loan. Most lenders won’t extend this period, so it’s important to have a clear plan for selling your existing home.
Example: How a Bridging Loan Works in Practice
Meet John and Helen, a Sydney couple ready to upsize to a $1.3 million home. Their current home is listed at $900,000 but hasn’t sold yet. They don’t want to miss out on the new place, so they explore a bridging loan.
Here’s how their process looked:
- They consulted a mortgage broker to explore their options.
- A bridging loan of $400,000 was arranged, secured against both properties.
- Their broker explained they could borrow up to 80% of the combined property values.
- Pre-approval was obtained within 48 hours, giving them a strong position to negotiate.
- They made an offer, which was accepted thanks to their financing being in place.
- The loan application was submitted and approved, and the settlement was coordinated by their broker.
- They moved into their new home and had several months to sell the old one before converting the bridging loan to a standard mortgage.
How we can help
Bridging finance can be a powerful tool — if it’s used strategically. As mortgage brokers, we help assess your eligibility, compare options across lenders, and guide you through the process from start to finish.
Thinking about buying before you sell?
Let’s chat and explore whether a bridging loan could work for you.
Disclaimer: This blog offers general information on mortgages and finance for informational purposes only. It is not a substitute for personalized advice from a qualified mortgage professional or financial advisor. Use your discretion and seek professional guidance based on your individual circumstances.
