Pros and cons of a bridging loan instead of sitting in limbo
If you’ve found the perfect property but haven’t yet sold your current home, you might be wondering how to make the move without missing out.
That’s where a bridging loan can come in. Designed to help you buy first and sell later, a bridging loan provides short-term finance that covers the gap between the purchase of your new home and the sale of your existing one.
Like any financial product, bridging loans come with their own set of advantages and potential risks. Here’s a breakdown of the pros and cons to help you decide whether it’s the right solution for your next move.
The pros of using a bridging loan
The biggest benefit of a bridging loan is flexibility. It allows you to secure your next home without waiting for your current one to sell.
Bridging finance means you can avoid renting in between moves. You won’t need to pack up twice, juggle storage costs, or worry about timing your move to the day. Instead, you can focus on settling into your new home while selling your old one on your terms.
Another advantage is that many bridging loans offer interest-only repayments during the bridging period, helping to reduce financial pressure. In some cases, lenders will even capitalise the interest, meaning no repayments are required at all until after your current property has sold. This can be especially useful for families balancing school zones, job changes, or lifestyle upgrades while managing two mortgages in the short term.
If your existing home needs a quick refresh before going to market, whether it’s landscaping, minor renovations, or staging, having access to funds through bridging finance can help you boost its sale price without dipping into your savings.
The cons of bridging loans
Of course, there are trade-offs to consider. The main downside of a bridging loan is the increased level of short-term debt. For a period of time, usually between six to twelve months, you’ll owe the combined value of both properties. Even if interest is capitalised, you’re still accruing interest on the full balance, and the longer your home takes to sell, the more interest you’ll pay.
Bridging loans also tend to have slightly higher interest rates than standard home loans. Depending on the lender, the terms may include more conservative lending ratios or require strong equity in your existing home. This can make bridging finance harder to access for buyers with smaller deposits or less borrowing capacity.
Another risk is timing. If the market softens or your property doesn’t sell within the bridging period, you may need to renegotiate with your lender or begin making full repayments on a much larger loan than originally intended.
For that reason, it’s important to enter a bridging loan with a clear exit strategy, ideally, having your current home listed for sale or under contract before settlement on the new home.
Some lenders may also require you to have a confirmed contract of sale for the new property before approving the bridging loan. Documentation requirements can vary, and a pre-approval doesn’t guarantee unconditional approval until your full application is assessed.
Is a bridging loan right for you?
Bridging loans can be a smart strategy for homeowners looking to upsize, downsize or relocate – especially in a competitive property market. If you have strong equity, a stable income, and a solid plan to sell your current home within a defined timeframe, this type of finance can provide the breathing room to buy with confidence.
But they’re not for everyone. The key is to weigh the convenience of buying first against the cost of holding two properties, however temporarily.
Before you make any decisions, speak to us as we can help you compare your options, assess your eligibility, and help find a solution based on your personal circumstances.
*This information is general in nature and does not take into consideration your individual circumstances. Please contact us for further information.
