Costs and numbers
Peak debt vs end debt
The two numbers that determine what a bridging loan costs you and whether you should take one at all.
The two numbers, defined
Peak debt is the total you owe at the highest point of the transaction: your existing mortgage, plus the amount borrowed to buy the new property, plus the fees and capitalised interest rolled into the facility. It is the balance you hold while you own both properties.
End debt is what is left after your existing property sells and the proceeds are applied. In most cases it becomes an ordinary home loan against the new property, on ordinary terms.
Almost every mistake people make with bridging finance comes from confusing the two — assuming interest is charged on the smaller number, or assuming the sale will clear more than it does.
A worked example
Say your current home is worth $1,100,000 with $300,000 still owing, and you buy for $1,300,000. The bridge funds the purchase plus around $22,000 in fees and costs. Peak debt is therefore roughly $1,622,000 — the old mortgage plus the new purchase plus costs.
Interest accrues on that full peak figure, not on the new purchase alone. Over four months at an indicative 9.5% that is about $51,000, which is typically capitalised rather than paid monthly.
Your home then sells for $1,080,000. After selling costs of roughly 2.5% you net about $1,053,000. Applied against peak debt plus accrued interest, that leaves an end debt near $620,000 — which becomes your ongoing mortgage.
Why lenders test the end debt hardest
Peak debt is temporary and secured against two properties, so it is comparatively low risk for the lender. End debt is permanent, secured against one, and has to be serviced out of your income for years.
That is why an assessment that feels oddly focused on your salary, rather than on your equity, is behaving correctly. The lender is confirming that the loan you are left with is one you can actually carry.
If the end debt does not service, the answer is not a bigger bridge. It is a smaller purchase, a larger deposit from other funds, or a different structure entirely.
Where the numbers go wrong
The most common error is using an optimistic sale price. If the example above sold for $980,000 instead of $1,080,000, the end debt jumps by the full $100,000 — and the monthly repayment with it. Build the calculation on a conservative figure and treat anything above it as upside.
The second is forgetting that interest compounds on peak debt for the whole term. A facility that runs eight months instead of four does not cost twice as much by accident; it costs twice as much because that is exactly how it was always going to work.
The third is ignoring selling costs. Agent commission, marketing, conveyancing and any presentation spend all come out before the proceeds touch the loan. Two and a half per cent of the sale price is a reasonable working assumption.
Common questions
Is interest charged on peak debt or on the new loan only?
On peak debt — the full balance including your existing mortgage. This is the single most misunderstood aspect of bridging finance.
What does capitalised interest mean?
Rather than paying interest monthly, it is added to the loan balance and repaid with everything else when your property sells. It preserves your cash flow but increases the final balance.
Can I reduce my end debt?
Yes — by selling for more, contributing cash at settlement, or buying at a lower price. Some clients also apply proceeds from another asset.
What if my sale does not cover the peak debt?
You are left with a larger end debt, which must still be serviceable. This is why lenders assess the end position on conservative sale assumptions.
Talk it through with someone who does this daily
Five minutes on the phone will tell you more than an afternoon of reading. We will give you an honest view of whether bridging finance fits your situation.
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