Bridging Loan Resources and Glossary
Definitions of the terms used across this site, a worked calculation you can apply to your own position, and a map of where each subject is covered in full.
Glossary
Peak debt
The total borrowing at the point of maximum exposure in a bridging transaction: your existing mortgage, plus the new purchase price, plus purchase costs, less any cash you contribute. It is measured against the combined value of both properties rather than either one alone, which is why a buyer with substantial equity in an outgoing property can support a purchase that looks unaffordable against the incoming one.
End debt
What remains after the outgoing property settles and the net sale proceeds are applied: the peak debt, plus capitalised interest, less those proceeds. The end debt converts to a standard loan once the transaction completes. It is the figure that determines whether the structure is sustainable, because it is what you will actually be servicing.
Loan to value ratio (LVR)
Total borrowing divided by property value, expressed as a percentage. Short-term facilities commonly sit up to 65% to 75%, subject to the security, the purpose and the lender's assessment. Where more than one property is offered, the ratio is calculated across the combined position.
Combined LVR
Where more than one facility is secured against the same property, the total of all borrowing against it divided by its value. On a second mortgage this is the figure that governs capacity, not the size of the second facility on its own. A $300,000 second mortgage behind a $400,000 first on a $1,500,000 property is a modest position. The same $300,000 behind a $1,000,000 first is not.
Loan to cost (LTC)
Used in development lending. The loan divided by total development cost, including land, construction, consultants, holding costs and contingency. It determines how much equity a developer must contribute, and commonly sits at 75% to 80%.
Loan to gross realisation (LTGRV)
Also development lending. The loan divided by the gross sales value of the completed project, commonly around 65%. Development lenders test LVR, LTC and LTGRV together and fund whichever produces the smallest number, so a deal can pass two and still be capped by the third.
Open and closed bridging
A closed facility has a contracted repayment date, usually an unconditional sale with a known settlement date, and generally prices better because the risk is smaller and defined. An open facility is used where the property has not yet sold, so repayment is expected rather than contracted, and lenders apply a more conservative loan-to-value ratio to allow for the uncertainty.
Capitalised interest
Interest added to the loan balance rather than paid monthly, and repaid at exit. It is what makes carrying two properties workable when no additional income is available. The trade is that the balance grows over the term, so the amount repaid at settlement is higher than the amount drawn.
Exit strategy
The event that repays the facility, ordinarily a sale or a refinance. It has more influence on both approval and pricing than any other single factor. An intention is not an exit. A signed contract, a live listing with comparable evidence, or a conditional approval from an incoming lender is.
Priority deed
A tripartite agreement between the borrower, the first mortgagee and the second mortgagee that caps the amount the first mortgagee can claim ahead of the second, covering principal, accrued interest, enforcement costs and any future advances. Without one, a second mortgage lender cannot quantify the debt sitting in front of it. Obtaining it is usually the slowest step in arranging a second mortgage.
Partial discharge
A provision allowing one property, or one unit in a development, to be released from the security on agreed terms as it settles, rather than requiring the whole facility to be repaid first. It is what determines whether you see any cash from early settlements or whether every dollar goes to the lender until the facility clears. Negotiate it at term sheet stage, not once units are exchanging.
Minimum interest period
A term requiring a minimum number of months' interest to be paid even if the facility is repaid sooner. On a loan you expect to hold for three months, a six month minimum doubles the cost of the borrowing. It is one of the most commercially significant terms in a short-term facility and one of the least asked about.
Worked example: calculating available equity
Using the loan-to-value definition above, on a property valued at $1,500,000 with $700,000 of existing debt:
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Current LVR: $700,000 divided by $1,500,000 is approximately 46.7%
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At a 75% lending ceiling, total borrowing capacity would be $1,125,000
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Less the existing $700,000, that indicates equity headroom of approximately $425,000 before costs
Illustrative only. Headroom is not an approved amount. The purpose of the funds, the strength of the repayment plan, the property type and each lender's own assessment all bear on what is actually advanced. Ceilings commonly sit between 65% and 75%, and some security types sit well below that.
The same calculation with a 65% ceiling gives capacity of $975,000 and headroom of $275,000. The gap between those two figures, $150,000, is the practical value of a strong security position and a well-evidenced repayment plan.
Model your own numbers in the bridging loan calculator.
Where each subject is covered
Understanding the product
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Bridging loans explained, the overview
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How bridging loans work, covering peak debt, end debt and capitalised interest in full
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Interest rates, where current indicative pricing is maintained
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Costs and fees, itemising establishment, valuation, legal and discharge costs
Types of facility
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Residential bridging, for households moving between homes
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Commercial bridging, for business, investment and development purposes
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Second mortgage loans, where priority deeds and combined LVR apply
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All three under loan types
Situations
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Buying before selling, auctions, releasing equity, renovating before sale, settlement gaps and downsizing, all under use cases
Borrowers
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Who qualifies for a bridging loan, the eligibility assessment in full
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Property investors, including cross-collateralisation
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Developers, where LTC and LTGRV apply
State rules
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Cooling-off periods, contract mechanics and auction rules differ substantially by state. Compared on locations.
Questions
Five questions worth asking before you proceed
Whether you use us or not, these are the terms that determine what a facility actually costs you:
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What is the total cost of funds over the term I will actually hold it? Not the headline rate. The total, including establishment, valuation, legal and discharge costs.
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Does a minimum interest period apply? See the definition above. This is the one that most often surprises people.
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What happens if my exit is late, and what does an extension cost? Extensions are common. The price of one should not be a surprise.
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Can the facility be partially discharged? Relevant wherever you are selling in stages or holding more than one security.
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What specifically has to happen before settlement? Valuation, existing lender consent, entity documents. Knowing the order tells you where the delays will come from.
Have a scenario rather than a question? Send it through with the property, the existing debt against it, the amount you need and how you expect to repay. You will get an indicative answer, usually the same business day.