Bridge loans in Australia: managing the gap between homes
Emma is a 34 year old teacher living in regional New South Wales. After years in her first apartment, she and her partner have finally found a house closer to work and family. The timing seems perfect, but there is one challenge: their current place has not sold yet. At the same time, they do not want to miss out on the new home. Their bank suggests they consider bridge loans in Australia as one option.
Emma has heard of bridge loans but is not sure how they work or what the risks are. Are they just like a normal home loan? How long do they last? And what happens if the sale of their current place takes longer than expected? This blog follows Emma’s story and explains how bridge loans work in Australia, along with some alternatives and how regulated short term credit products fit into the picture. Loans are subject to credit assessment, eligibility criteria, and approval.
Emma’s situation and the need for bridging
Emma and her partner own an apartment with a home loan. They have built up some equity over time, but not enough to comfortably buy the new house without selling the apartment. The new property has strong interest from other buyers, and the seller wants a relatively quick settlement.
If they wait until their apartment is sold, they might miss out on the new house. On the other hand, trying to manage two large loans at once feels risky. This is why the idea of a bridge loan comes up: a short term way to cover the gap while they move from one property to another.
What are bridge loans in Australia?
Bridge loans in Australia are short term lending arrangements that help property owners manage the timing difference between selling one property and buying another. Instead of waiting for the sale to complete, a bridge loan provides temporary funding so the purchase can go ahead.
In Emma’s case, the bridge loan would sit alongside their existing home loan. It would allow them to complete the purchase of the new house while the apartment is still on the market. Once the apartment is sold, the sale proceeds would be used to reduce or clear the bridge loan.
Bridge loans are usually secured against property and may be offered by banks or specialist lenders. They are different from small amount and medium amount credit contracts that lenders like Fundo provide for smaller personal expenses.
How the bridging process works
When Emma and her partner explore bridge loans, their bank looks at several factors. These include the value of the apartment, the amount left on their current home loan, the purchase price of the new house, and their combined income.
The bank estimates a likely sale price for the apartment, sometimes using valuations and market data. Based on these numbers, they calculate how much bridging finance might be needed and how long the bridging period could reasonably last.
During the bridging period, Emma and her partner may be asked to make interest only payments on the bridge loan, or in some cases, interest may be capitalised and added to the balance. Either way, they need to be clear about how much the loan will cost over the bridging period and what happens if the apartment takes longer than expected to sell.
When bridge loans might help
Bridge loans can help people like Emma when they have:
- A realistic and timely plan to sell their current property.
- Sufficient equity to support the bridging arrangement.
- A clear understanding of the payments and how they fit into the household budget.
In this situation, a bridge loan allows Emma and her partner to secure their new home without waiting for the apartment sale to settle first. It offers flexibility, as long as the sale and repayment plan are realistic.
When bridge loans might not be right
Bridge loans may not be suitable when there is significant uncertainty about the sale of the existing property. If the market is slow or there is a risk that the sale price will be much lower than expected, the costs of bridging can become difficult to manage.
If Emma’s budget was already tight, taking on a bridge loan could add stress, especially if repayments continued for longer than planned. Bridge loans are not designed to solve broader affordability issues, and using them without a clear exit plan can lead to ongoing pressure.
Alternatives Emma could consider
Before committing to a bridge loan, Emma and her partner explore alternatives.
- They ask their bank whether settlement dates can be aligned so that the apartment sale and house purchase occur on the same day or close together. This could reduce the amount of bridging finance needed, or remove the need for a separate bridge loan altogether.
- They also check whether their current home loan has portability features that allow them to transfer the loan to the new property, subject to assessment, instead of creating a separate bridging facility.
- For smaller, related costs such as moving, connection fees, or minor repairs, they consider whether savings or regulated short term credit products might be more appropriate, provided the repayments fit clearly within their budget.
Where regulated short term credit fits in
While large, property secured bridge loans are handled by banks and specialist lenders, regulated short term credit products can sometimes help with smaller expenses around a move.
For example, if Emma needs to cover a one‑off moving bill or an urgent repair that is separate from the property purchase itself, a small regulated short term loan may be an option, subject to assessment. These products are not designed to replace home loans or bridge the full cost between properties, but they can sometimes help with discrete, manageable expenses.
It is important to remember that short term loans can be expensive, and they are only suitable when repayments fit comfortably within the budget.
Fundo’s perspective on bridge loans and moving costs
Fundo does not offer large secured bridge loans between properties. Instead, Fundo focuses on regulated short term credit products for smaller personal expenses.
For customers who are moving between homes, Fundo may be able to help with specific, one‑off costs such as moving services or essential household items, provided the loan is assessed as suitable and affordable. Fundo reviews recent bank statements and financial history to see whether the repayments can be managed without substantial hardship.
If approved, customers receive a contract that sets out repayment amounts, schedule, and any applicable fees. Repayments are usually made by direct debit from an Australian bank account.
Frequently Asked Questions
How long can a bridge loan last?
Bridge loans generally last for a defined bridging period, often a few months, but the exact length depends on the lender and your situation. The aim is to repay the loan after your existing property is sold or refinanced.
Are bridge loans more expensive than normal home loans?
Bridge loans can have different interest rates and fee structures compared with standard home loans. They may be more expensive on a short term basis, so it is important to understand the total cost over the bridging period.
Can I use a bridge loan if I am unsure about selling my current property?
Bridge loans work best when there is a clear plan and strong likelihood of selling the existing property. If you are unsure about selling or expect significant delays, a bridge loan may not be suitable.
Does Fundo offer bridge loans?
Fundo does not provide large, property secured bridge loans. Fundo offers regulated short term credit products for smaller personal expenses, subject to assessment.
Can I use a short term loan to cover moving costs instead of a bridge loan?
Some people use regulated short term loans to cover smaller moving costs, such as removal services or essential items, provided the repayments are affordable. These loans are not a replacement for large home loans or bridging finance.
What should I do if I am unsure about bridge loans?
If you are unsure, consider speaking with your existing lender, a financial adviser, or a financial counsellor. They can help you understand how bridge loans work in Australia, the risks involved, and whether they align with your financial situation.
Important Information
Short term loans can be expensive and may not be suitable for everyone. Borrow only what you need and can afford to repay. Failing to repay on time can lead to additional costs and affect your essential expenses.
Credit provided by Fundo Loans Pty Ltd (ACN 604 639 143) Australian Credit Licence 491418. Loans are subject to credit assessment, eligibility criteria, and approval.
