You've found your next home — but your current one hasn't sold yet. It's one of the most common dilemmas Melbourne upgraders face, especially in a winter market where clearance rates are running well below last year's levels and selling timelines have stretched. A bridging loan lets you buy first and sell second, using the equity in your existing home to fund the purchase. Here's how bridging finance actually works in 2026, what lenders require, and when it's the wrong tool for the job.

KEY TAKEAWAY: A bridging loan gives you 6–12 months to sell your current home after buying the next one — but lenders typically want 20–30% equity and cap your total "peak debt" at around 80% of the combined value of both properties.

What Is a Bridging Loan and How Does It Work?

A bridging loan is a short-term facility that temporarily covers the ownership of two properties at once. Rather than forcing you to sell, settle, and then scramble to buy, the lender uses the equity in your current home to fund your new purchase. For a set bridging period — usually 6 to 12 months — you hold both properties. When your existing home sells, the proceeds pay down the debt and you're left with a standard home loan on the new property.

The structure revolves around two numbers:

  • Peak debt — your existing mortgage balance, plus the funds needed to buy the new home (including stamp duty and costs), plus any interest that accrues during the bridging period.
  • End debt — what remains after your old home sells and the proceeds are applied. This becomes your ongoing mortgage.

During the bridging period, most lenders offer interest-only repayments — and many will capitalise the interest, adding it to your loan balance so you make no repayments on the bridging portion at all. That eases cash flow, but it means the debt grows every month your old home sits on the market. The faster you sell, the less the bridge costs.

What Do Lenders Require in 2026?

Bridging finance is equity-driven lending, and banks assess it conservatively. As a general guide in the current market:

  • Equity: most lenders want at least 20–30% equity in your current home; some conservative lenders want considerably more.
  • Peak LVR: total peak debt is commonly capped at around 80% of the combined value of both properties.
  • Serviceability: with the RBA cash rate at 4.35% following the June 2026 hold, and APRA's 3% serviceability buffer still in place, lenders will stress-test your capacity to carry the peak debt — not just the end debt.
  • Exit strategy: you need a credible plan to sell, supported by realistic valuations on both properties. Lenders order their own valuations and will discount an optimistic agent appraisal.
  • Lender policy quirks: some banks only offer bridging finance to existing home loan customers, and policies on maximum terms and capitalised interest vary widely.

That last point is where a broker earns their keep. Bridging policy differs more between lenders than almost any other loan type — the same application can be declined at one bank and approved at another on the strength of the exit strategy alone.

What Does Bridging Finance Cost?

Bridging loans are usually priced above standard variable home loan rates, and the premium applies to your full peak debt — not just the new purchase. On top of interest, budget for application fees, valuation fees on both properties, legal costs, and potentially lenders mortgage insurance if your peak LVR creeps above 80%. Because pricing varies significantly between lenders and changes frequently, we won't quote rates here — contact IFG for current bridging options matched to your situation.

The bigger "cost" is often timing risk. If your home doesn't sell within the bridging term, the lender can extend, reprice, or require the property to be sold — possibly below the price you hoped for. In a market where Moneysmart urges borrowers to understand the full cost of holding debt, going in with a realistic sale price and timeline is essential.

When Does a Bridging Loan Make Sense?

Bridging finance suits Melbourne homeowners who have strong equity, a readily saleable property, and a genuine reason to secure the next home now — the right house in the right school zone, a downsizer opportunity, or a purchase timed around a knockdown-rebuild or construction project. It also spares you the cost and disruption of renting between homes and moving twice.

It's the wrong tool if your equity is thin, your suburb has long days-on-market, or your budget can't absorb a slower-than-expected sale. In those cases, alternatives are often smarter:

  • Sell first, then buy — with a negotiated longer settlement or short-term lease-back giving you time to find the next home.
  • Purchase subject to sale — less attractive to vendors, but workable in a buyer's market like winter 2026.
  • Equity release or refinancing — if you're keeping the current property as an investment, refinancing to access equity may beat bridging entirely; see our guide on using home equity to buy an investment property.

How IFG Structures a Bridge That Works

As MFAA-accredited brokers operating under BLSSA Pty Ltd (Australian Credit Licence 391237), we compare bridging policies across our lender panel — equity requirements, maximum terms, capitalised interest rules, and how each lender treats your end debt. We model your peak debt honestly, stress-test what happens if the sale takes longer than planned, and make sure the end debt is a loan you'd actually want to keep. If bridging isn't the right fit, we'll tell you — and show you the alternative that is.

Found the next home before selling this one?

Book a free 15-minute call and we'll map out whether a bridging loan, longer settlement, or equity release is the smartest path for you — no obligation, no cost to you.

Book a free consultation   or call 0401 333 636

This article is general information only and does not constitute financial or credit advice. Lending criteria, fees and figures quoted are indicative only and subject to change without notice. Brian Hermosilla (Credit Representative 485802) and Frank Marin (Credit Representative 486546) are credit representatives of BLSSA Pty Ltd, Australian Credit Licence 391237. Please speak with a qualified mortgage broker to assess your individual circumstances.