You have found the right home, but your current one is not sold yet. Bridging loans exist for exactly this gap: they let you buy first and sell second, without a rushed sale or a missed opportunity. The trade-off is that you carry two properties' worth of debt for a while, and the interest keeps building until you sell. This guide explains how bridging finance works in Australia, walks through a fully worked example, and sets out the risks, costs and alternatives for Hobart and Tasmanian buyers.
Key takeaways
- A bridging loan covers the purchase of a new home while you sell your existing one, usually over a bridging period of around six to twelve months.
- Peak debt is everything you owe at the start; end debt is what remains once your sale proceeds are applied.
- Interest on the bridging portion is often capitalised, which means it is added to the balance and itself attracts interest each month.
- The two big risks are a sale that takes longer than planned and a sale price below expectations. Both increase your end debt.
- Alternatives such as selling first, negotiating a longer settlement or a rent-back may suit you better. Compare them before committing.
How bridging loans work
A bridging loan is a short-term home loan arrangement that funds your new purchase while your existing property is on the market. Most lenders structure it as a combined facility secured over both properties. When your old home sells, the net proceeds pay down the bridging portion, leaving an ordinary home loan on the new property. When it is for a home you will live in, bridging finance is consumer credit regulated under the National Consumer Credit Protection Act, so responsible lending obligations apply.
Peak debt
Peak debt is the highest amount you owe during the bridging period. It is usually your existing home loan plus the price of the new home plus purchase costs such as transfer duty, legal fees and lender fees, less any cash you contribute. Some lenders also add an allowance for the interest that will be capitalised during the bridging period.
End debt
End debt is the loan you are left with after your existing property sells and the net proceeds are applied: peak debt, minus net sale proceeds, plus any capitalised interest. This becomes your ongoing home loan, and it is the figure lenders focus on when assessing whether you can afford the arrangement.
The bridging period
The bridging period is the time you have to sell. Lenders commonly allow around six months when you are buying an established home and up to twelve months when you are building, though terms vary. If you have not sold by the end of the period, the lender may require you to reduce the price, change agents or, ultimately, may take steps to sell the property itself.
Capitalised interest and how it compounds
With many bridging loans you make normal repayments on the end-debt portion, while interest on the bridging portion is capitalised. Capitalised interest is not paid each month; it is added to the loan balance. The next month's interest is then calculated on the larger balance, so you pay interest on interest. Over a few months the compounding effect is modest, but it grows the longer the sale takes, and every dollar of capitalised interest is added to your end debt.
A worked bridging loan example
Example only. The figures below are illustrative and use an illustrative interest rate of 7.00% p.a. for both the bridging and end-debt portions, with interest compounding monthly. Real loans may calculate interest daily and charge it monthly, and actual rates and costs will differ. Check current rates with lenders.
The starting position
| Item | Amount |
|---|---|
| Expected sale price of current home | $800,000 |
| Existing home loan | $250,000 |
| Price of new home | $950,000 |
| Illustrative purchase costs (duty, legal, lender fees) | $40,000 |
| Illustrative selling costs (agent commission, marketing) | $20,000 |
Step 1: calculate peak debt and end debt
Peak debt = $250,000 existing loan + $950,000 new home + $40,000 purchase costs = $1,240,000. Against the combined value of both properties ($1,750,000), that is a peak loan-to-value ratio (LVR) of about 70.9%.
Net sale proceeds = $800,000 − $20,000 = $780,000. Forecast end debt before interest = $1,240,000 − $780,000 = $460,000. The bridging portion, the amount to be cleared by the sale, is therefore $780,000.
Step 2: capitalise interest on the bridging portion
Assume you pay interest only on the $460,000 end-debt portion during the bridging period, which costs $2,683.33 a month. Interest on the $780,000 bridging portion is capitalised monthly at 7.00% p.a. (0.5833% a month):
| Month | Interest added | Bridging balance | Total capitalised interest |
|---|---|---|---|
| 1 | $4,550.00 | $784,550.00 | $4,550.00 |
| 2 | $4,576.54 | $789,126.54 | $9,126.54 |
| 3 | $4,603.24 | $793,729.78 | $13,729.78 |
| 4 | $4,630.09 | $798,359.87 | $18,359.87 |
| 5 | $4,657.10 | $803,016.97 | $23,016.97 |
| 6 | $4,684.27 | $807,701.24 | $27,701.24 |
Notice that each month's interest is slightly larger than the last. Simple interest over six months would be $27,300; compounding adds a further $401.24. The difference is small over six months but grows with time.
Step 3: the sale settles and end debt is set
The home sells for $800,000 at the end of month six. The $780,000 net proceeds repay the original bridging amount, and the $27,701.24 of capitalised interest stays on the loan. End debt = $460,000 + $27,701.24 = $487,701.24, about 51.3% of the new home's value. Repaid over 30 years at 7.00% p.a., principal and interest, that is $3,244.69 a month.
You can model your own scenario in our loan calculator, and our Bridging & Short-Term Finance Guidance page explains how we can help you prepare.
The risks: when the sale does not go to plan
A bridging loan works well when the sale happens on time and at the expected price. The risk is concentrated in those two assumptions.
The sale takes longer
Every extra month adds capitalised interest, and you keep paying for the end debt, rates, insurance and upkeep on two properties.
The sale price is lower
Every dollar below your expected price adds a dollar to your end debt. If prices soften while you are selling, you can be hit by both risks at once. Using the same example:
| Scenario | Capitalised interest | End debt | Monthly P&I (30 years, 7.00%) |
|---|---|---|---|
| Sells for $800,000 in 6 months | $27,701.24 | $487,701.24 | $3,244.69 |
| Sells for $800,000 in 9 months | $41,918.62 | $501,918.62 | $3,339.28 |
| Sells for $800,000 in 12 months | $56,386.26 | $516,386.26 | $3,435.53 |
| Sells for $760,000 in 6 months | $27,701.24 | $527,701.24 | $3,510.81 |
| Sells for $760,000 in 12 months | $56,386.26 | $556,386.26 | $3,701.65 |
The lower-price scenarios assume the same $20,000 selling costs. In the worst case shown, end debt is $68,685.02 higher than in the base case and the monthly repayment is $456.96 higher, before counting six extra months of interest-only payments on the end debt ($16,100) and holding costs.
Two sets of costs
While you own both homes you pay council rates, water, insurance and maintenance on each, plus moving costs. If the old home is vacant, check that your insurance still covers it, as some policies restrict cover for unoccupied homes.
Open vs closed bridging loans
Closed bridging
A closed bridging loan applies when you have already exchanged unconditional contracts on your existing home and know the settlement date. The lender's risk is lower because the sale price and timing are known, so closed bridging is generally easier to obtain. It is often used to cover a gap between settlement dates.
Open bridging
An open bridging loan applies when your existing home has not yet sold. The lender is relying on your estimate of sale price and timing, so it will usually want an independent valuation, a realistic agent appraisal, and a clear plan to sell within the bridging period. Open bridging carries more risk for both you and the lender.
Costs of bridging finance
Beyond interest, allow for:
- Valuations on both properties, since the lender takes security over each.
- Application, establishment and settlement fees, and discharge fees on your existing loan if you change lenders.
- Transfer (stamp) duty on the purchase. In Tasmania, duty is administered by the State Revenue Office of Tasmania; check its website for current rates and any concessions.
- Lenders Mortgage Insurance (LMI) if your peak or end-debt LVR exceeds the lender's threshold, typically 80%.
- Conveyancing or legal fees for both the purchase and the sale.
- Selling costs: agent commission, advertising, styling and any pre-sale repairs.
- Holding costs on two properties, as above.
Owning two homes at once can also raise tax questions. The ATO has a rule that can allow both properties to be treated as your main residence for capital gains tax purposes for up to six months, if conditions are met. If you hold both properties on 1 July, check with the State Revenue Office whether land tax applies. Ask your accountant how these apply to you.
How lenders assess a bridging loan application
Lenders look at bridging finance from two angles: can you afford the end debt, and is the plan to sell realistic?
Serviceability
Most lenders assess your ability to repay the end debt, plus any repayments required during the bridging period, using your income, living expenses and other debts. Under APRA guidance, lenders test repayments at a buffer above the actual loan rate, so the rate used in the assessment is higher than the one you will pay. Some lenders also want evidence you could cope if the sale fell short.
Security and LVR
The lender will value both properties. Many lenders set maximum LVRs for both the peak debt and the end debt, and some include an allowance for capitalised interest in the peak debt figure. Policies differ significantly between lenders.
Your exit strategy
Expect questions about your selling agent, listing date, price expectations and how comparable homes have sold. A signed agency agreement and a realistic appraisal strengthen an open bridging application. For a fuller picture of lender criteria, read how lenders assess your loan application.
Alternatives to bridging loans
Bridging finance is one way to solve the timing problem. These alternatives may cost less or carry less risk.
| Option | How it works | Main advantage | Main drawback |
|---|---|---|---|
| Sell first and rent | Sell, move into a rental, then buy | You know exactly what you can spend | Moving twice; rent; risk of prices rising |
| Longer settlement | Negotiate an extended settlement on your purchase, or align both settlement dates | Time to sell without bridging | Vendor must agree; may weaken your offer |
| Subject-to-sale offer | Make the purchase conditional on selling your home | No risk of owning two homes | Less attractive to vendors |
| Rent-back | Sell, then rent your old home from the buyer for an agreed period | Move once, with sale proceeds in hand | Buyer must agree; time-limited |
| Deposit bond | A guarantee used in place of a cash deposit, for a fee | Secure a purchase without cash on hand | Does not fund settlement; vendor must accept |
| Using equity | Borrow against your current home for the deposit, then refinance after selling | Can be simpler than a full bridging loan | Must service both loans; still exposed to sale risk |
For a broader look at home loan structure, see how loan term changes what you really pay, and Moneysmart has independent guidance on buying and selling.
Timing your sale in the Hobart market
Because bridging costs rise with every month you wait, timing matters. A few general principles apply in Hobart and across Tasmania:
- Seasonality: spring is traditionally a busier time for listings and buyers, while winter can be quieter. More listings means more buyers, but also more competition for your home.
- Days on market: how long homes take to sell varies by suburb, price point and property type, and it changes with market conditions. Ask your agent for recent days-on-market data for comparable homes in your area, not city-wide averages.
- Price evidence: Hobart is a smaller market than the mainland capitals, so there may be fewer recent comparable sales. Base your expected price on several genuinely comparable sales and an independent appraisal, not on the best sale in the street.
- Holiday periods: the Christmas and January period can slow campaigns, inspections and settlements. Allow extra time if your bridging period spans it.
Checklist before you apply
- Get an independent appraisal or valuation of your current home
- Calculate peak debt, end debt and capitalised interest for six and twelve months
- Stress-test your end debt with a sale price 5% to 10% lower
- Confirm your budget can carry end-debt repayments plus two sets of holding costs
- Get estimates of transfer duty from the State Revenue Office of Tasmania and quotes for legal fees
- Ask lenders about bridging period limits, LVR limits and how interest is calculated
- Choose your selling agent and agree a listing date and campaign plan
- Check insurance cover for a vacant property
- Talk to your accountant about capital gains tax and land tax timing
- Compare at least one alternative, such as a longer settlement or rent-back
Want help organising your documents and understanding your options before you talk to a lender?
Book a Home Loan Readiness Review
Hobart Loans is not a lender and does not give personal advice. Where you want credit, we may refer you to a licensed broker or lender and will disclose any referral fee first. Unfamiliar terms are explained in our glossary, or you can contact us.
Frequently asked questions
How long can a bridging loan last?
Bridging periods are commonly around six months for an established home and up to twelve months if you are building, but each lender sets its own limits. Ask what happens if you have not sold by the end of the period.
Do I make repayments during the bridging period?
Usually you make repayments on the end-debt portion, while interest on the bridging portion is capitalised. Some lenders structure it differently, so confirm exactly what you will pay each month.
What is the difference between peak debt and end debt?
Peak debt is the total owed while you hold both properties: your existing loan, the new purchase and costs. End debt is what remains after your existing home sells and the net proceeds are applied, plus any capitalised interest.
What happens if my home does not sell in time?
Interest keeps capitalising, and the lender may require a price reduction or other action. If the property still does not sell, the lender may eventually take steps to sell it. Speak to your lender early if you expect delays.
Are bridging loans more expensive than normal home loans?
Bridging arrangements can carry higher rates or fees than standard home loans, and capitalised interest increases the cost the longer the sale takes. Compare the total cost with alternatives such as a longer settlement.
Can I get a bridging loan if I am self-employed?
Often, yes, provided you can document your income and show you can afford the end debt. Expect to provide tax returns, financial statements and BAS, and allow extra time for assessment.
