In an ideal world, you would sell your current house on a Tuesday and move into your new dream home on a Wednesday. In the real world, real estate timing is about as predictable as a toddler’s mood. This is where Bridging Finance comes in. It is essentially a short-term loan that "bridges" the gap between the purchase of a new property and the sale of an existing one.
How It Works (The "Peak Debt" Phase)
When you take out a bridging loan, the bank effectively takes over the existing mortgage and adds the cost of the new home on top. During this period, you are in what is called "Peak Debt."
- The Good News: Most lenders don’t require you to make repayments on the bridging component during the sale period (usually 6 to 12 months). The interest is "capitalized," meaning it’s added to the loan balance.
- The Reality Check: Because interest is being added to the loan rather than paid off, the debt grows every month the old house remains unsold.
Why You Need a Strategy
Bridging finance is a fantastic tool, but it’s not for the faint of heart. It requires a clear "End Debt" goal—the amount you’ll owe once the old house finally settles. If the market dips and your house sells for less than expected, that "bridge" might feel a little longer than anticipated.
It beats the alternative, though: moving into your parents' basement with two kids, a dog, and a decade’s worth of furniture because settlement dates didn't align.