How and When to Use a Bridging Loan
Recently updated on October 1st, 2026 at 05:08 pm
You’ve found the next place. Maybe it’s a family home with the extra bedroom you’ve been after, or an investment property that won’t sit on the market long enough for your current place to sell first. The problem is your equity is tied up in a home you haven’t sold yet. This is exactly the gap bridging loans are designed to close, offering short-term finance secured against the existing property, allowing you to settle on the new one before the old one is sold.
Bridging finance isn’t a niche product anymore. As banks tighten their bridging criteria and settlement timeframes get tighter across the country, more buyers and business owners are turning to private lenders who can move at the pace the property market demands.
Quick Answer
- A bridging loan lets you buy your next property before your current one sells, using equity in your existing home as security.
- Interest is usually capitalised during the bridging period, so there’s typically nothing to pay out of pocket until your existing property settles.
- Most lenders want at least 20% equity, a realistic sale price, and a workable exit strategy before approving a bridging loan.
- Consumer bridging loans (Mango Mortgages) must exit via sale of the security property; business bridging loans (Mango Credit) can exit via sale, refinance, or cash flow.
How a Bridging Loan Works
Bridging loans are usually secured against your existing property. They typically last for 12 months, although this is flexible depending on your circumstances and the lender’s eligibility criteria.
Bridging loans tend to have higher interest rates than standard mortgages due to the lender’s relative risk.
The lender combines your existing mortgage with the funds needed to buy the new property into a single facility, often referred to as your peak debt. During the bridging period, interest is usually capitalised into the loan rather than paid out of pocket, so you’re not juggling repayments on two properties at once while your first home is still on the market.
Once your existing property sells, the sale proceeds go straight toward paying off the debt.
Because the loan is secured against real estate rather than assessed purely on income, private lenders can often approve and fund a short-term bridging loan in days rather than weeks, which matters when you’re up against an unconditional auction contract or a settlement date that won’t move.
Exit strategy is the other piece lenders focus on closely. For a personal bridging loan, the sale of the security property is required in order for lenders to meet their obligations under the National Consumer Credit Protection Act 2009. For business borrowers, the exit can be broader and might include refinancing into longer-term finance or repayment from cash flow, since business bridging loans sit outside that consumer credit framework.
Worked Examples
Consumer Bridging Loan (Mango Mortgages)
This example assumes a consumer bridging loan through Mango Mortgages. The exit strategy is the sale of the security property.
A homeowner in Sydney owns a property valued at $900,000 with $350,000 remaining on their mortgage. They’ve found a new home priced at $600,000 and want to secure it before their existing property sells. They have $230,000 in savings to contribute toward the purchase, and need a bridging loan to cover the remainder.
| Security property value | $900,000 |
| Existing mortgage | $350,000 |
| Maximum LVR (80% – Mango Mortgages consumer) | $720,000 |
| Maximum bridging loan available | $370,000 (being $720,000 – $350,000) |
| New property purchase price | $600,000 |
| Borrower contribution (savings) | $230,000 |
| Bridging loan amount | $370,000 |
| Peak debt (existing mortgage + bridging loan) | $720,000 |
During the bridging period, interest is capitalised into the loan, and no payments are made out of pocket while the existing property is on the market. Once the security property sells for $900,000 (net of agent fees and selling costs of approximately 3%, leaving around $873,000), the proceeds will repay the full peak debt of $720,000. The remaining $153,000 goes to the borrower. The bridging facility is closed, and the new property is owned outright or with separate finance already in place.
Business Bridging Loan (Mango Credit)
This example assumes a business bridging loan through Mango Credit. Exit options for business loans are more flexible. Repayment can come from the sale of the property, refinancing into longer-term finance, or business cash flow.
A business owner in Melbourne owns a commercial property valued at $1,200,000 with $400,000 remaining on an existing mortgage. They need short-term capital to fund a business acquisition while longer-term finance is being arranged.
| Security property value | $1,200,000 |
| Existing mortgage | $400,000 |
| Maximum LVR (70% – Mango Credit business) | $840,000 |
| Maximum bridging loan available | $440,000 ($840,000 – $400,000) |
| Bridging loan amount | $440,000 |
| Peak debt (existing mortgage + bridging loan) | $840,000 |
| Exit strategy | Refinancing into longer-term business finance once the acquisition is settled |
During the bridging period, interest is capitalised, and no monthly repayments are required. Once longer-term finance is in place, the bridging loan is repaid in full, the security is discharged, and the business owner moves onto their new facility.
Note: These examples are illustrative only. Actual borrowing capacity, costs, net proceeds, and exit options (for business borrowers) depend on your specific equity position, selling costs, and circumstances. Borrowers should seek advice from a licensed financial adviser before proceeding.
When People Use a Bridging Loan
You may consider a bridging loan if:
- You need funds to complete a purchase. If you have already made an offer on a property, but need funds to complete the purchase, bridging loans are often used. Bridging loans are also increasingly used for renovations to maximise the home’s value prior to the sale of the property.
- You need funds to pay for business loans. Bridging loans are often used by business owners to help smooth out cashflow, to purchase inventory or equipment or to act on a time-sensitive opportunity. Business bridging loans are offered through Mango Credit, and their exit options are more flexible than those for consumer loans. Repayment can come from business cash flow, refinancing, or the sale of a property.
Eligibility and Equity Requirements
Equity is the starting point for any bridging loan application, and most lenders want to see at least 20% equity in your existing property, though more gives you room to move and access better pricing. Beyond that headline figure, lenders will typically also look at:
- Combined loan-to-value ratio (LVR): Your peak debt measured against the combined value of both properties, usually capped somewhere between 65% and 80%, depending on the lender and security type.
- A credible exit strategy: For consumer bridging loans, this means a genuine intention to sell the existing property.
- Property type and location: Metro properties with clear sale prospects are viewed more favourably than rural or highly specialised properties.
- Existing mortgage position: Whether your current lender’s consent is needed, and how the new facility will sit alongside it.
- Realistic sale valuation: Lenders will often want an independent valuation on your existing property, so the sale price your exit strategy relies on holds up under scrutiny, not just what you hope it might fetch.
Private lenders assessing bridging loans tend to weigh these factors against your overall equity position and exit plan rather than income or credit history, which is why bridging finance can work for self-employed borrowers, retirees, or anyone whose paperwork doesn’t fit a bank’s standard mould.
We Fund Bridging Loans Directly
Not every lender in this space is currently active. Mango Credit and Mango Mortgages are, and we fund bridging loans directly rather than acting as a broker or middleman.
That means no waiting on a credit committee several steps removed from your file. You deal with the people assessing and funding your loan, with indicative offers typically within 24 hours, and funds generally available within 3 to 5 business days once the loan offer is accepted. If your bank has said no or can’t move fast enough, that’s usually exactly when a direct private lender can help.
Is A Bridging Loan Right For You?
A bridging loan can be the difference between securing the property you want and watching it go to someone else while you wait for your current home to sell. It works best when you have solid equity, a realistic sale timeframe, and a lender who can move quickly once you need to act.
If you’re weighing up whether a bridging loan is right for your situation, talk to the Mango Credit and Mango Mortgages team. Get in touch or apply online to find out where you stand.
Disclaimer: This article is for general information purposes only and does not constitute financial advice. Every person’s financial situation is unique, and you should seek advice from a licensed financial adviser before making decisions about borrowing against your property equity. Mango Credit and Mango Mortgages provide short-term loans secured by real estate but do not provide financial planning or investment advice. Mango Mortgages holds Australian Credit Licence 422165 for consumer lending purposes.
FAQs
What happens if my home doesn’t sell in time?
This is the question most people are really asking before they take out a bridging loan. If your property hasn’t sold by the end of the agreed bridging period, most lenders will work with you to extend the term, provided your situation and the property’s sale prospects still stack up. Some lenders may move to a higher default interest rate on the outstanding balance, or, in a worst case, require the property to be sold to recover the debt. This is exactly why the exit strategy is scrutinised so closely at the application stage, and why it pays to be realistic (not optimistic) about how long your sale might take.
How long does a bridging loan last?
Most bridging loans run from a few months up to 12 months, occasionally longer, where a build is involved. The right term depends on your selling timeframe and the lender’s own policies.
Do I have to make repayments during the bridging period?
Often not in the traditional sense. Many bridging loans capitalise interest into the loan balance, meaning nothing is paid out of pocket until the property sells and the loan is settled. Some lenders offer interest-only repayments instead, so it’s worth confirming which structure applies to your loan before you sign.
Can I use a bridging loan to build a new home?
Yes, though the terms usually differ from a straightforward buy-before-you-sell scenario. Build-related bridging loans tend to run longer, sometimes up to 24 months, to account for construction timeframes, and lenders will want to see a fixed-price building contract and a clear plan for how the existing property’s sale fits around the build schedule.
Will I pay a higher interest rate on a bridging loan?
Generally, yes. Bridging finance carries higher rates than a standard home loan because the loan is a shorter-term loan, and the lender is taking on the risk of an unsold property. The exact rate depends on the lender, your equity position, and whether the loan is for a residential or business purpose.
Is a bridging loan only for people selling their home?
No. While buying before selling is the most common use, bridging loans are also used for pre-sale renovations, settlement shortfalls, and business working capital secured against real estate.
Yanis founded Mango Credit in 2001 and personally assesses and structures every loan. With over 20 years in Australian private lending, he writes on bridging loans, caveat loans, and short-term property finance.