Two numbers explain most bridging structures
Bridging finance is designed for the period when you are buying a new property before the existing property has sold. During that period the lender may temporarily be funding the existing mortgage, the new purchase, purchase costs and some or all of the bridging interest and fees.
That is why a bridging loan is easier to understand when you separate Peak Debt from End Debt.
Peak Debt is broadly the highest amount being funded during the bridge. End Debt is what is left after the existing property is sold and the net sale proceeds are applied.
What typically feeds into Peak Debt
Exact lender calculations vary, but the building blocks commonly include:
Existing debt
The mortgage or other debt being refinanced or paid out on the property being sold.
New purchase
The purchase price of the new property and relevant acquisition costs.
Additional funding
Renovations, cash-out or other approved amounts may be included in some structures.
Interest and lender fees
Some bridging facilities capitalise interest or create an interest allowance upfront. Setup, valuation and settlement fees may also be financed.
The maximum term is not the expected term
A facility may have a maximum term of 12, 18 or another number of months, but that does not necessarily mean the borrower can wait until the final month before marketing or selling. Some lenders impose listing, marketing, auction or other sale milestones during the facility.
The more useful modelling period is therefore the expected actual exit date, with a stress test for a slower sale. Interest and fees can materially change if the bridge lasts longer than expected.