Bridging Loans Explained

What Is a Bridging Loan?

A bridging loan is a short-term mortgage that covers the gap between purchasing a new home and selling your existing one.

• Short-term finance
  Usually available for up to six months.
• Repayment source
  Paid off once your current home sells.
• Higher rates
  Interest is often higher than a standard home loan.
• Temporary loan
  Designed to manage timing, not long-term borrowing.

How It Works

There are two main types of bridging loans in New Zealand:

• Closed bridging loan
  You already have a confirmed sale date for your current home. Risk is lower, so costs are often less.
• Open bridging loan
  Your home hasn’t sold yet. This carries more risk for lenders, so it’s harder to secure and more expensive.

In both cases, the bank assesses affordability, equity, and the likelihood of your property selling.

The Application Process

Applying for a bridging loan NZ is similar to a standard mortgage, with extra checks:

• Review
  The bank checks income, expenses, and debts.
• Valuation
  Registered valuations may be required for both properties.
• Equity check
  Lenders prefer strong equity to reduce risk.
• Approval
  Funds are advanced for the purchase, with repayment expected once the sale is complete.

At Taranaki Home Loans, we coordinate with lenders and your lawyer to keep things running smoothly through settlement.

Costs and Risks

Bridging finance can help, but it’s important to weigh up the downsides.

• Higher interest
  Rates are usually 1–2% above standard mortgages.
• Double repayments
  You may need to cover interest on two loans until your property sells.
• Time limits
  Most lenders cap bridging at six months.
• Market risk
  If your home takes longer to sell, costs can rise quickly.

Alternatives

Sometimes other options may suit better than a temporary home loan:

• Same-day settlement
  Aligning sale and purchase dates avoids bridging.
• Sell first
  Provides certainty but may mean renting in the meantime.
• Conditional offers
• Making your purchase subject to selling, though sellers may prefer unconditional offers.
• Refinancing with equity
  Accessing equity in your current property to fund the purchase.

Conclusion & Next Steps

A bridging loan can make buying before selling possible, but it comes with higher costs and risks. Careful planning, good advice, and clear timing are essential.

If you’re considering temporary home loan options, contact Taranaki Home Loans today. We’ll review your situation and guide you through the best finance approach for your move.