What is a Bridging Loan for Investment Property?
A bridging loan lets you buy an investment property before your current property sells. The lender uses both properties as security during the bridging period, which typically runs for six to twelve months, and you pay interest on the combined debt until your existing property settles.
For Defence members relocating or building an investment portfolio, this removes the pressure to sell in a hurry or arrange temporary accommodation between settlements. The loan structure covers the purchase price of the new investment property while your existing home remains on the market.
How the Security and Loan Amount Work
The lender calculates your borrowing limit using the combined value of both properties. If your current home is worth $600,000 with a $300,000 mortgage and you want to buy an investment property at the suburb's current median, the lender assesses your total loan to value ratio (LVR) across both securities. Most lenders cap bridging finance at 80% LVR without requiring mortgage insurance, though some will stretch to 90% depending on your serviceability.
The bridging loan amount includes your new purchase price, any existing mortgage debt, and the capitalised interest for the bridging period. That interest is added to the loan balance rather than paid monthly, so you're not managing two separate repayments during the transition.
Bridging Finance Costs and How Interest Capitalisation Works
Bridging finance typically carries a higher margin than a standard home loan. At current variable rates, expect to pay an additional 1% to 2% above the lender's standard investment loan rate. Interest accrues daily on the full bridging loan amount and is capitalised, meaning it's added to your loan balance each month rather than paid out of pocket.
Bridging loan fees include a facility fee, usually between $500 and $1,500, and standard settlement costs for the new purchase. Some lenders also charge a monthly account-keeping fee during the bridging period. If your existing property sells within six months, total interest costs might run between $8,000 and $15,000 depending on the bridging loan amount, but this varies with your specific borrowing and how quickly the sale completes.
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When Bridging Finance Makes Sense for Defence Members
Bridging finance works when your existing property has enough equity to support both loans and you're confident of a sale within the bridging term. Consider a Defence member posted to South Australia who owns a property in Queensland and wants to buy an investment property in New South Wales before the Queensland property sells. If the Queensland home has $250,000 in equity and the investment property purchase won't push the combined LVR above 80%, bridging loans let that member secure the investment property without waiting for settlement.
This approach also suits members building a portfolio who want to act on an investment opportunity but need a few months to prepare their current home for sale. The alternative is selling first and renting, which adds moving costs and risks missing the purchase window.
What Happens If Your Property Doesn't Sell During the Bridging Period
If your property doesn't sell within the agreed bridging term, you'll need an exit strategy. Most lenders will extend the bridging period for another three to six months if the property is actively marketed and you're still meeting repayments, but they'll reassess your serviceability and may require a valuation update.
The fallback is converting the bridging loan into a standard mortgage structure, which means you'll be servicing two property loans simultaneously. Your income needs to support both repayments at that point, which is why lenders assess your serviceability on that basis from the outset. Some Defence members in this position choose to rent out their existing property instead of selling, converting it to an investment loan and holding both assets long term. That option depends on your borrowing capacity and whether the rental income covers the mortgage.
Bridging Loan Application and Approval Timeline
Lenders assess bridging finance applications using the same serviceability criteria as any other loan, but they also evaluate the likelihood of your existing property selling within the bridging term. They'll want evidence the property is listed or will be listed immediately, a recent valuation, and a clear sale price expectation based on comparable sales in the area.
Approval typically takes five to ten business days, faster than a standard home loan because the urgency is built into the product. Settlement can occur within two to three weeks if the property purchase requires it. Defence members using no LMI loans or other ADF-specific benefits can often apply those concessions to bridging finance, reducing the overall LVR impact and improving serviceability.
Alternatives to Bridging Finance
If bridging finance doesn't suit your situation, equity release loans let you access funds from your existing property without selling it. You'd use that equity as a deposit on the investment property and hold both assets long term, converting your current home to an investment if needed.
Another option is selling your existing property first and arranging a long settlement on the new purchase, giving you time to complete both transactions without overlap. This works if the seller is flexible, but it removes the ability to act quickly on investment opportunities. Some Defence members also consider short-term personal finance to cover the deposit gap, though this adds another layer of serviceability assessment and usually costs more than bridging finance over the same period.
Understanding Bridging Loan Risks
The primary risk is holding two properties without the income to service both loans if the sale falls through. Lenders mitigate this by stress-testing your application at a higher assessment rate, but market conditions can shift during the bridging period. If property values drop or buyer demand weakens, your existing home might sit on the market longer than expected, and you'll be carrying the capitalised interest and dual holding costs.
Another risk is underestimating the bridging period. A six-month term assumes your property will sell within that window, but seasonal markets, local economic changes, or pricing misjudgments can extend the timeline. If you're posted or deployed during the sale period, managing offers and negotiations remotely adds complexity. Setting a realistic sale price from the start and working with an agent who understands the local market reduces this risk.
Call one of our team or book an appointment at a time that works for you. We'll assess your equity position, run the serviceability numbers, and confirm whether bridging finance suits your situation or whether another structure makes more sense for your posting timeline and investment goals.
Frequently Asked Questions
How long does a bridging loan last when buying an investment property?
Bridging loans typically run for six to twelve months, giving you time to sell your existing property after purchasing the investment property. Most lenders will extend the term if your property is actively marketed and you're meeting repayments, but they'll reassess your situation.
Do I pay two mortgages during the bridging period?
No, the interest on the bridging loan is capitalised, meaning it's added to your loan balance each month rather than paid separately. You continue paying your existing mortgage as normal until your current property sells.
What happens if my property doesn't sell within the bridging loan term?
You can request an extension, typically another three to six months, if the property is listed and you're meeting serviceability requirements. Alternatively, you can convert the bridging loan into a standard mortgage structure and hold both properties, though your income must support both loans.
Can Defence members use LMI waivers with bridging finance?
Yes, Defence members can often apply ADF-specific benefits like LMI waivers to bridging finance, which improves your loan to value ratio and borrowing capacity. This makes it easier to secure approval without exceeding standard LVR limits.
What is the typical interest rate on a bridging loan for investment property?
Bridging loans usually carry a margin of 1% to 2% above the lender's standard investment loan rate. At current variable rates, this means you'll pay more than a traditional mortgage, but the cost is temporary and ends when your existing property sells.
