How Does Bridging Loans Work? Essential Guide for Canberra's Homebuyers

Buying your dream home in Canberra can be tricky, especially if you're juggling the sale of your current property. That’s where a bridging loan comes in—a short-term solution designed to cover the financial gap between buying a new home and selling your old one.

 

But, let's face it, figuring out the finer details of how these loans work can get overwhelming. 

That’s where mortgage brokers step in. With a broker’s expertise, you can navigate the complexities of bridging loans, assess your financial situation, and help secure the best deal suited to your needs.

In this guide, we’ll walk you through how bridging loans work in Canberra, what to expect in terms of costs and time frames, and other essential details to help you make informed decisions. 

Ready to learn more? Let’s dive in.

What is a Bridging Loan?

A bridging loan is a short-term financial option that helps property buyers purchase a new home before selling their existing one. In a hot market like Canberra, where properties can sell and settle quickly, the time frame between purchasing a new property and selling your current one can often create a financial gap.

If you're purchasing your dream home but your current house is still on the market, a bridging loan can cover that gap by offering temporary financing. This gives you extra time to sell your original property and repay the bridging loan when the sale is finalised.

How Does a Bridging Loan Work?

A bridging loan essentially covers the difference between the purchase price of your new home and the sale price of your current one. It allows you to move forward with your purchase without having to wait for your existing property to sell.

The loan amount is based on the peak debt, which is the total debt you owe, including the loan for the new property and any outstanding mortgage on your current home. You’ll only need to pay interest on the portion of the loan that you’ve actually drawn, typically on an interest-only basis during the bridging period.

Sample Bridging Loan Computation

Let’s break it down with an example:

• New Property Purchase Price: $900,000
• Current Home Value: $600,000
• Outstanding Mortgage on Current Home: $200,000
• Estimated Sale Price of Current Home: $600,000

1. Peak Debt: This is the total debt you'll owe during the bridging period, which includes the purchase of the new property and your existing mortgage.

Peak Debt = New Property Purchase Price + Outstanding Mortgage Peak Debt = $900,000 + $200,000 = $1,100,000

2. Sale of Current Home: Once your current home sells, the proceeds go toward reducing the bridging loan.

Loan Repayment from Sale = Estimated Sale Price - Mortgage Loan Repayment = $600,000 - $200,000 = $400,000 

3. Final Loan Balance: After the sale of your current home, the remaining debt (now on your new property) is:

Final Loan Balance = Peak Debt - Loan Repayment Final Loan Balance = $1,100,000 - $400,000 = $700,000

During the bridging period, you'll only need to pay interest on the $1.1 million peak debt, and after the sale, your ongoing loan will be based on the final loan balance of $700,000.

This is a simplified calculation, and other costs like stamp duty, exit fees, and interest rates will affect the final figures, so always consult a loan specialist for an accurate breakdown.

Key Components of a Bridging Loan:

• Bridging Loan Term: Typically lasts 6-12 months. However, it's essential to have an exit strategy—your plan for repaying the loan, usually from the sale of your original house.

• Loan Interest Rates: Bridging loans often come with higher rates than regular home loan rates. The loan interest rate is generally higher due to the short-term nature of these loans and the added risk for lenders.

 

• Loan Repayments: During the bridging period, your loan payments may be interest-only, depending on your arrangement with the lender. After your original house is sold, the outstanding mortgage and any loan balance from the bridging loan will be paid off.

• Break Costs: Some lenders charge break costs if you exit a fixed-rate loan early to take out a bridging loan. Make sure you understand these fees before committing.
  

Bridging Loan vs. Traditional Home Loans

Bridging loans differ from traditional home loans in several ways. With traditional loans, buyers typically need to sell their current home before purchasing a new one to avoid managing multiple loans.

However, bridging loans provide a short-term debt solution by allowing you to buy a new home while you’re still in the process of selling your original property.

Traditional Home Loans:

• Standard terms up to 30 years
• Requires an existing home sale before buying
• Lower interest rates

Bridging Loans:

• Short-term loan for 6-12 months
• Suitable when purchasing a new property before selling the original house
• Higher loan interest rates
  
  

Costs and Considerations

While bridging loans can offer flexibility, there are some costs and potential risks to consider:

1. Loan Interest Rates: As mentioned, bridging loans typically have higher rates than traditional loans.
2. Exit Fees and Break Costs: Some lenders may charge additional fees for exiting existing loans early, especially if you’re locked into a fixed-rate mortgage.
3. Peak Debt: You may be paying interest on the total loan amount for both properties until your original property sells, which could stretch your cash flow.
4. Market Conditions: If the real estate market in Canberra slows down and your current property doesn’t sell as quickly as expected, you may face increased financial pressure.

Canberra's Property Market Trend: Why Bridging Loan is the Right Choice for Property Investment in 2025

Canberra's property market continues to show strong performance in 2025. With a median house price sitting at around $948,000, the demand for housing in the ACT is rising, driven by a mix of government employment stability, high rental demand, and ongoing infrastructure growth. 

According to Domain’s House Price Report, Canberra remains one of Australia’s top-performing real estate markets, with solid growth across suburbs. However, with competitive market conditions, properties can sell within weeks—or even days—once listed.

This quick turnaround time often leaves buyers in a tight spot. For investors looking to secure high-demand properties while waiting for their current homes to sell, a bridging loan becomes a strategic financial tool.

Here’s why:

1. Capitalising on Market Opportunities

The Canberra market has seen some of the fastest settlement periods across the country. Bridging loans allow buyers to act swiftly when a good investment property becomes available.

By securing the new property ahead of time, you don’t miss out on potentially lucrative opportunities due to a slow sale of your existing home.

2. Managing Financial Pressure

Property investors typically face pressure to sync up settlement dates. Bridging loans give you that extra time to comfortably sell your existing property without rushing or accepting a lower sale price to meet deadlines.

This flexibility can help avoid short-term losses and ensures you can hold out for a better deal on your original house.

3. Navigating High Rental Demand

Canberra is consistently in the top tier for rental property demand, and many investors are keen to jump into the market before prices climb further.

If you're purchasing a property with high rental potential but still waiting to sell your current home, a bridging loan provides the necessary cash flow to take advantage of the booming rental market without being financially overcommitted.

4. A Suitable Solution for Growing Markets

With property valuations on the rise, the value of your existing property may increase while it’s still on the market, potentially giving you more leverage once it sells.

By using a bridging loan, you can secure the new property while benefiting from any price increases on your current home, especially in a market that’s trending upward like Canberra's.

5. Better Financial Flexibility

Canberra’s property market conditions in 2025 favour investors who can make informed decisions quickly.

Bridging loans provide a financial contingency plan, giving you the ability to fund the purchase of your new home while you’re waiting for the sale of your current property to finalise. This short-term financing option ensures your plans are not delayed, and you can still take advantage of favourable loan interest rates.

For expert advice on navigating Canberra's 2025 market trends with a bridging loan, reach out to Home Loan Brokers Canberra at 02 6173 6397. We can guide you on how to make the most out of the current market and secure your property investments effectively.

Types of Bridging Loans: Open vs. Closed

There are two main types of bridging loans:

Closed Bridging Loan

This type is ideal when you’ve already agreed on a sale for your current home. Since there’s a definite settlement date, lenders see this as less risky, and it often comes with lower interest rates. 

Open Bridging Loan 

If your home isn’t yet sold, an open bridging loan is a more flexible option. However, these loans come with higher interest rates due to the uncertainty of your exit strategy.

Eligibility and Application Process

Applying for a bridging loan isn’t much different from applying for a regular home loan, but there are a few extra steps:

1. Property Valuations: Lenders will need to assess the value of both your current property and the one you’re looking to buy.
2. Credit History: As with any loan, your credit history plays a crucial role in your application. 
3. Servicing Capacity: Lenders will review your income, debts, and current borrowing capacity to ensure you can handle both your current and new mortgage during the bridging period.
4. Loan Structures: Bridging loans often have different loan structures compared to traditional loans, so it’s important to understand what type of loan suits your financial situation.

Case Study: John & Sarah’s Canberra Property Move

John and Sarah found their dream home in the inner suburbs of Canberra. However, they still hadn’t sold their original property in Tuggeranong. They were stuck in a common scenario—having signed the contract of sale for the new property, but their current house had only just gone on the market. 

After consulting with a loan specialist, they opted for a bridging loan, which covered the purchase costs of the new house while giving them six months to sell their original property.

The bridging loan period allowed them to secure the new home without the pressure of selling their current property immediately. Once they sold their original home, they used the proceeds to repay the outstanding mortgage on both properties.

FAQs 

How is a bridging loan calculated?

A bridging loan is based on your peak debt, which includes the purchase price of your new property and the outstanding mortgage on your current property. The amount is reduced once your existing home is sold and the proceeds are applied to the loan.

What are two risks for the client when obtaining a bridging loan?

The first risk is the possibility that your current home won’t sell as quickly as expected, which can lead to higher interest costs. The second is the risk of fluctuating market conditions, potentially causing your home to sell for less than anticipated.

How long do you get to pay back a bridging loan?

Typically, bridging loans are designed to be short-term, with repayment terms ranging from 6 to 12 months. The exact timeframe depends on your lender and the sale of your current property.

Do you still need a deposit for a bridging loan?

Yes, most lenders still require a deposit for the new property, which is usually around 20% of the purchase price, although some terms may vary depending on your financial circumstances.

Are bridging loans hard to get?

Bridging loans can be harder to obtain than regular home loans because they rely on your servicing capacity, credit history, and the likelihood of selling your existing property within the loan period. Lenders will carefully assess your financial situation before approval.

How much equity do you need for a bridging loan?

Most lenders require you to have at least 50% equity in your current home to qualify for a bridging loan. However, the exact requirement may vary depending on your lender and personal financial circumstances.

What is the limit for a bridging loan?

The limit for a bridging loan is typically based on your peak debt, which includes the value of your current home, the new property, and any outstanding mortgage. Lenders will calculate the maximum loan based on your borrowing capacity and property valuations.

Can you refinance a bridging loan?

Yes, you can refinance a bridging loan if needed, especially if you require more time to sell your current property or if market conditions change. However, it's important to factor in any break costs or fees that may apply when refinancing.

Final Thoughts

In Canberra’s ever-changing property market, a bridging loan can be a smart way to manage the gap between buying a new home and selling your current one. By understanding how it works and planning carefully, you can avoid unnecessary stress and focus on finding the right financial solution for your circumstances.

If you're unsure whether a bridging loan is the best fit for your situation or if you need help with the finer details, we're here to assist.

Call Home Loan Brokers Canberra today at 02 6173 6397 to speak with our loan experts. Let’s help you move forward with confidence!