Bridging Finance Explained

If you've heard about bridging finance but the jargon (peak debt, end debt, capitalised interest) feels confusing — this guide walks through every concept in order so you can make a confident decision.

How does bridging finance work?

A lender funds your new property using both properties as security. The total amount you owe during the bridge is called peak debt. Once your existing property sells, the proceeds reduce the loan to your end debt — the long-term mortgage on the new property.

Peak debt is the total you owe during the bridging period — the new purchase price, any existing loan balance, plus interest and fees.

End debt is what's left after the existing property sells. Sale proceeds pay down peak debt, leaving the long-term mortgage that you'll service like a normal home loan.

Lenders assess whether you can comfortably service the end debt on your normal income — that's the affordability test you need to pass.

• Capitalised: interest accrues and is added to peak debt. No monthly payments — repaid in full when the property sells.
• Serviced: you pay monthly interest like a normal mortgage. Lower total cost but requires cash flow.

Lenders need to see a credible exit before they fund you. The three most common Australian bridging exits are: (1) sale of an existing property, (2) refinance to a long-term mortgage, (3) sale of a development on completion. The clearer your exit, the better the rate.

You buy a $900,000 home before your $750,000 home has sold. With an existing $200,000 mortgage, peak debt is roughly $1.1M. Six months later, your old home sells for $750,000 net. Peak debt drops to ~$350,000 — your end debt — which you refinance to a standard home loan.