Bridging loans | Deciding if you should buy or sell first - NAB

What is a bridging loan?

A bridging loan is a short-term loan that can help you buy a new property before you sell your current one. It’s designed to cover the timing gap between paying for your new home and receiving money from the sale of your existing home. People often sell first, then buy. But sometimes the right home comes up before your current place has sold, or you want more time to sell without rushing. Bridging finance is one way some buyers manage that timing gap.

How a bridging loan works

Imagine you’re buying a new home for $800,000 while your current property is still on the market. You expect it to sell for $600,000, and you still owe $250,000 on your existing mortgage. A bridging loan can help you manage the short-term gap between buying and selling.

To understand your bridging position, start with your peak debt, which is the highest amount you owe while you own both properties.

Peak debt

Peak debt = Remaining mortgage ($250,000) + Purchase funds ($800,000)

Peak debt = $1,050,000

When your current home sells, the proceeds reduce this amount.

End debt after the sale

Peak debt: $1,050,000 

Less sale proceeds: $600,000

End debt = $450,000

This $450,000 becomes your ongoing home loan once the bridging period ends.

Typical features of a bridging loan

Limited bridging period

Usually available for a set timeframe, often up to 12 months.

Interest only during the overlap

Repayments are commonly interest-only while you own both properties.

Variable interest rate

Most bridging loans use a variable rate, and some allow extra repayments.

Clear repayment plan

You generally need a defined exit strategy, usually the sale of your current home.

Borrowing based on equity

Loan amounts are typically capped at a percentage of the combined property value (often 80%), so a certain level of equity is required.

Fees may apply

Application or ongoing facility fees can be part of the setup.

Explore bridging loans

Buying first with a bridging loan

Benefits

  • Secure a home quickly: You can buy the property you want without waiting for your sale to settle.
  • Avoid moving twice: You may move straight into your new home, without renting or storing your belongings.
  • More flexibility when selling: You can take more time preparing and listing your current property instead of rushing the sale.

Considerations

  • Higher short-term costs: You may need to cover interest on the bridging loan and costs on your existing home until it sells.
  • Risk if your sale takes longer: A slower sale can extend the overlap and increase interest charges.
  • Uncertainty about final loan amount: If your home sells for less than expected, you may need to cover a shortfall.
  • Repayment time limit: Bridging loans typically need to be repaid within a set period, often up to 12 months.

Costs involved

Bridging loan interest rates vs standard mortgage rates

Bridging loans often have different pricing to standard home loans and can be higher because they’re short term and involve a transition between properties. Comparing home loan interest rates can help you understand the range of rates that may apply to different loan types.

Additional fees to consider

Costs vary by lender and loan setup, but fees may include:

  • Valuation fees, which may apply to one or both properties
  • Legal and settlement costs
  • Loan setup or variation fees

A useful way to build understanding is to review common loan charges in one place.

Managing cashflow between homes

Cashflow matters during a property changeover because the costs can stack up. Even if the bridging loan is temporary, overlapping expenses can affect how comfortable the transition feels.

Here are practical strategies to stay organised:

Plan for overlapping housing costs

This might include two sets of repayments, council rates, insurance, utilities, and body corporate fees if relevant.

Budget for moving costs

Removalists, storage, cleaning, and temporary accommodation can add up quickly.

Build a buffer for delays

Sales timelines can change due to buyer finance, settlement dates, or market conditions. An emergency fund is always a sensible idea.

Understand your loan features

Some people use an offset account or redraw facility to manage money during the transition, depending on what is available on their loan.

If you want a quick sense of what you may be able to manage based on income and commitments, you can start with a borrowing power calculator.

Quick decision checklist

Before exploring bridging finance, it can help to check your understanding of the basics:

  • I have a realistic view of my current property value and likely sale timeframe.

  • I can manage repayments and living costs if the sale takes longer than expected.

  • I understand that bridging can cost more than a standard mortgage because it’s short term and may involve higher debt for a period.

  • I have budgeted for extra costs like moving, storage, and possible overlap between homes.

If you want to talk through how bridging loans generally work and what information you may need to provide, our home loan experts can help.

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Important information

The information contained in this article is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, NAB recommends that you consider whether it is appropriate for your circumstances. NAB recommends that you seek independent legal, financial and taxation advice before acting on any information in this article.