Ready to Buy Your Next Home? Here’s How a Bridging Loan Works

By: Aaron Robbins0 comments

The elation of finding the perfect next property can quickly turn to deflation unless you have finance at the ready. Particularly in today’s property market, knowing that you’ve got the financial backing to jump on a property opportunity is more important than ever. However, if you’re relying on the sale of your existing home or property to purchase the new place, you might be feeling the restriction of the finance gap.

A bridging loan can help bridge the gap between purchase and sale, to keep you moving in your property ownership journey. Learn more about bridging loans with our bridging loan guide.

How does a bridging home loan work?

You might be wondering ‘how does a bridging loan work’?

Bridging loans are aptly named, as they provide a loan to bridge the space between purchasing a new property before receiving the proceeds from the sale of your existing property. Essentially, a bridging loan finances the purchase of the new property, and is repaid using the sale proceeds from your existing property.

Diverse Funding Solutions offers two types of bridging finance:

Open bridging finance

Most borrowers apply for open bridging loans when they are yet to sell their existing property and don’t know the sale date. This type of bridging finance must be fully repaid at the loan maturity date, regardless of whether you sell your property or not, in that time.

This also means that you must cover and interest costs you incur during that time.

Closed bridging loans

Closed bridging finance, however, can be applied for if you’ve already got a settlement date, or an eager buyer interested in your property. As there is more certainty that you’ll be able to sell your existing property, closed bridging finance is usually less risk than open bridging financing.

This makes closed bridging loans a good option for buyers who request a longer settlement period.

What is the bridging term?

Bridging finance is a short-term loan. At Diverse Funding Solutions, we offer bridging loan terms of up to 6 months if you’re purchasing a new home. If you’re buying a newly constructed home, then the bridging period is extended, with a maximum loan term of 12 months.

Can I have an existing mortgage and access a bridging loan?

Even if you have any existing mortgage or home loan on your sale property, you can still access a bridging loan. This would essentially result in having two loans; your current mortgage and the new bridging loan.

Must know: if you have a loan on your existing house, and take out a bridging loan, you’ll be getting charged interest on both loans. In a high-interest rate environment, this could amount to a large interest bill.

Do I make principal and interest repayments on a bridging loan?

Bridging loans are offered by Diverse Funding Solutions with a few different repayment options, including:

  1. Interest-only.
  2. Capitalised interest (no need to make monthly repayments, interest is repaid at the end of the loan term).
  3. Part interest-only, part capitalised repayments.

Diverse Funding Solutions are very flexible and can structure repayments to suit your circumstances.

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Bridging loans explained further: the pros and cons

We take a glance at the pros and cons of using bridging finance.

Pros of bridging loans


A bridging loan could offer peace of mind that you’re able to purchase your new house, without having to sell your existing home yet.

No need to find temporary accommodation

Generally speaking, if homeowners sell their current property, but haven’t yet settled on the new property, they’ll need to find temporary accommodation. Sometimes, this means living with family or in a friend’s house, placing their belongings in storage or finding a short-term rental property.

With Australia’s rental availability crisis upon us, it may be difficult to find a suitable rental in a short period of time. Also, you may incur break costs for ending a tenancy before its lease end date.

Repayments are interest only

Thankfully, you don’t need to pay both principal and interest on the loan balance of your bridging loan. DFS bridging finance comes with interest-only repayments.

Things to bear in mind when using bridging finance

Market conditions

If the real estate market cools off while you have a bridging loan in place, it may increase the risk of your property not being sold, or your property value may drop below the initial valuation when you took out the bridging loan.

Top Tip: given the hot rental market, you may be able to put on short-term tenants if you’ve already moved into your new property but yet to sell your existing property. The rent payments could help keep interest costs covered on the new bridging loan.

Interest rates

If you’re on a variable interest rate with your current property mortgage, you may find that your interest repayment amount goes up if there are increases to the cash rate. Depending on your home loan balance, this could represent a significant portion of your existing budget.

Costs involved

To access bridging finance, you’ll need property valuations for both properties. Two valuations may mean paying more property valuation or legal fees. Also, if your current lender charges termination fees, this may also add to your purchase costs.

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Who is eligible to apply for a DFS bridging loan?

Bridging loans through diverse funding solutions are available to existing business owners wishing to access finance between the purchase and sale of two properties.

If you know the approximate purchase price of the new property that you’re interested in, and have an idea of what your existing home is worth (or your likely sale price), our professional team can take you through how a bridging loan could work for you.

If you’re looking for lenders offering bridging finance, look no further. Contact DFS, today!

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