Bridging finance lets you purchase an investment property before your existing property has sold.
The loan uses both properties as security, providing short term finance while you complete the sale. You'll typically pay higher interest than a standard home loan, with fees that include application costs, valuation charges, and discharge fees when the bridging period ends. Most lenders cap the bridging loan term at 6 to 12 months and require a clear exit strategy before approval.
How Bridging Loan Security Works for Investment Purchases
The lender takes security over both your existing property and the new investment property. This dual security approach allows you to access a higher loan amount than you could secure with either property alone. Your bridging loan amount will depend on the combined loan to value ratio across both properties, with most lenders willing to lend up to 80% LVR without requiring lender's mortgage insurance.
Consider an investor who owns a unit in Eight Mile Plains near the Pacific Motorway and TAFE Queensland campus, valued at current market rates, with a remaining mortgage. They've found an investment property in a neighbouring suburb but can't settle until they sell their existing unit. A bridging loan uses both properties as security, allowing them to proceed with the purchase while their Eight Mile Plains unit remains on the market. Once the unit sells, the proceeds clear the bridging finance, leaving only the standard investment loan on the new property.
Bridging Finance Costs and How Interest Capitalisation Works
Bridging loan interest rates typically sit 1% to 2% higher than standard variable interest rates. Rather than making monthly repayments during the bridging period, most borrowers capitalise the interest. This means the lender adds interest charges to the loan balance each month, and you repay the full amount when your existing property sells.
Application fees range from $500 to $1,500, and you'll pay for two property valuations since the lender needs to assess both properties. Legal fees cover the additional loan documentation, and discharge fees apply when you exit the bridging finance. Over a 6 month bridging period, total costs including capitalised interest and fees can add several thousand dollars to your transaction.
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What Lenders Assess During Bridging Loan Approval
Lenders require evidence that you can service both loans if your property doesn't sell within the expected timeframe. They'll assess your income against the combined debt and want to see that your existing property is either already listed for sale or has an exchange contract in place. Your borrowing capacity needs to cover the temporary period where both debts sit on your name.
The exit strategy forms a critical part of the bridging loan application. You'll need to demonstrate how you'll repay the bridging finance, whether through the sale of your existing property, refinancing into a standard loan structure, or another funding source. Most lenders won't approve bridging finance for investment purchases without a realistic sale price based on recent comparable sales in your suburb and a documented marketing plan.
Bridging Loan Alternatives for Eight Mile Plains Investors
If your existing property has substantial equity, you might access funds through a standard refinance rather than bridging finance. This approach works when you can service the increased debt from rental income and your personal income combined. The interest rate will be lower than bridging finance, though you'll need to meet standard lending criteria without relying on a pending sale.
Another option involves a delayed settlement on your investment purchase, giving you time to sell your current property before the new purchase settles. This requires negotiation with the vendor and works better in slower markets where sellers accept longer settlement terms. Some investors use short term finance from private lenders, though this typically comes with higher costs than bank bridging products.
Working with a mortgage broker in Eight Mile Plains gives you access to bridging loan options from multiple lenders, including those who specialise in investment property transactions. Different lenders have varying criteria around maximum LVR, acceptable bridging periods, and whether they'll capitalise interest or require ongoing repayments. Approval timeframes can be tight when you're working toward an auction or exchange deadline, so starting the bridging finance application early improves your options.
Call one of our team or book an appointment at a time that works for you to discuss how bridging finance could support your investment property purchase.
Frequently Asked Questions
How long can I borrow with a bridging loan?
Most lenders offer bridging loan terms between 6 and 12 months. The term you choose should align with a realistic timeframe for selling your existing property, and lenders will want to see evidence that your property can sell within that period.
What deposit do I need for a bridging loan on an investment property?
Bridging loans work on combined equity across both properties rather than a cash deposit. Lenders typically require the total loan to value ratio across both properties to stay under 80% to avoid mortgage insurance, though some will lend higher with additional fees.
Can I get bridging finance if my property isn't listed for sale yet?
Most lenders will approve bridging finance before you list your property, but they'll require evidence that you plan to sell and a valuation showing realistic sale expectations. Some lenders prefer to see an active listing or exchange contract before final approval.
What happens if my property doesn't sell during the bridging period?
If your property doesn't sell within the agreed bridging loan term, you'll need to either extend the bridging finance (subject to lender approval and additional fees), refinance both properties into a standard loan structure, or find alternative funding to exit the bridge loan.
Do I make repayments during the bridging period?
Most bridging loans allow you to capitalise the interest, meaning the lender adds interest charges to your loan balance each month rather than requiring repayments. You repay the full amount, including capitalised interest, when your existing property sells.
