You've found it. The perfect property. Right location, right size, right price. Everything you've been searching for.
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There's just one problem: you haven't sold your current home yet.
The vendor wants an answer this week. Your real estate agent says if you don't move now, someone else will. But your own property might take 6-12 weeks to sell—maybe longer in a soft market.
What do you do?
This is exactly where residential bridge loans solve a problem that's incredibly common in property markets: the timing mismatch between buying and selling.
You're not financially stretched. You're not taking excessive risk. You're simply caught between two transactions that don't align on a calendar.
Let's break down how residential bridge loans work, when they make sense, what they cost, and how to use them strategically.
A residential bridge loan is short-term financing that "bridges" the gap between buying your next property and selling your current one.
Here's the typical scenario:
You own Property A (your current home) worth $800,000 with a $300,000 mortgage. You want to buy Property B (your new home) for $1,000,000.
Normally, you'd:
But Property B is available now, and Property A might take months to sell.
A bridge loan lets you:
The loan "bridges" the time gap between the two transactions.
Bridge loans typically come in two main structures:
Luminate provides a new first mortgage on your current property, paying out your existing mortgage and releasing equity for your new purchase.
Example:
Luminate provides a second mortgage behind your existing first mortgage, releasing equity without disturbing your current mortgage.
Example:
| Feature | Details |
|---|---|
| Loan Term | Typically 6-12 months |
| Interest Type | Usually interest-only or capitalised interest |
| Security | First or second mortgage over your current property |
| LVR Limits | Generally up to 70-75% combined LVR |
| Repayment | Full principal due when current property sells |
| Extensions | Often available if property hasn't sold |
1. You've Found Your Dream Home The property ticks every box. In a competitive market, waiting 3-6 months for your sale could mean losing it. The opportunity cost of missing out outweighs the bridge loan costs.
2. You Can Afford Both Mortgages Temporarily You need to service debt on both properties for several months. Bridge loans typically require interest-only payments or allow capitalised interest, but you need capacity to carry both.
3. Your Current Property Will Sell Your existing home is in a desirable area, good condition, and realistically priced. You're confident of a sale within 6-12 months.
4. Market Timing Matters Perhaps the market is softening and you want to buy now while prices are lower, even though your sale might take longer. Or you've found an undervalued property that won't last.
5. Life Timing Issues You're relocating for work, your kids need to start at the new school zone, or you have other time-critical reasons to move before selling.
Your current property has selling challenges (major defects, oversupplied area, unrealistic price expectations)
You can't service both loans even temporarily
The market is deteriorating and your sale timeline might extend significantly
You're already financially stretched and the bridge loan creates excessive stress
The new property can wait and vendors are flexible with timing
Clients: Mark and Lisa, professional couple with two young children
Current Property: 3-bedroom home in Auckland suburb, valued at $950,000
Current Mortgage: $380,000 with ASB
Target Property: 4-bedroom home in better school zone, priced at $1,350,000
Timeline Problem: Dream home had multiple interested parties, needed to move fast
Mark and Lisa needed $450,000 for their deposit (to keep new mortgage at comfortable levels). Their equity in the current property was $570,000 ($950k - $380k).
But releasing that equity meant selling first, which would take:
Total: 9-14 weeks minimum
The vendor of their dream home wanted an answer within 7 days. Another family was also interested.
Luminate Structure:
New Property Financing:
Week 1: Applied for bridge loan
Week 2: Bridge loan approved and settled
Week 3: Purchased new property, moved in
Weeks 4-8: Prepared current property for sale
Weeks 9-16: Marketing campaign
Week 17: Accepted offer on current property
Week 20: Settled sale, repaid bridge loan
Total bridge loan period: 20 weeks (5 months)
Interest cost: Approximately $18,500 (capitalised at 11.4% p.a.)
Establishment fee: $9,750 (1.5% of $650k)
Legal and valuation: $3,200
Total cost: $31,450
Why it made sense:
Mark's reflection: "The $31k felt significant, but losing that house would have been devastating. We looked at rentals in the school zone—they were $750+ per week. And there was nothing else on the market like the house we bought. Six months later, a smaller house in the same street sold for $1.42m. Best $31k we ever spent."
Formula:
Available Equity = (Current Property Value × Max LVR) - Existing MortgageExample:
Available equity = ($900,000 × 0.70) - $350,000 = $280,000
This is the approximate amount you could borrow via a bridge loan.
For your new property:
In this example, your $280k available equity comfortably covers your $255k needs.
| First Mortgage Bridge | Second Mortgage Bridge |
|---|---|
| Pros: Single lender on current property, potentially lower rate, cleaner structure | Pros: Existing mortgage stays in place (if good rate), less disruption, may be cheaper if current rate is low |
| Cons: Pays out existing mortgage (lose any good rate), higher total interest during bridge period | Cons: Two lenders on one property, second mortgages typically higher rate, existing lender must consent |
| Best when: Your current mortgage rate is average or you want simplicity | Best when: Your current mortgage has excellent rate worth preserving |
Interest payment options:
Option A: Interest-Only Payments
Option B: Capitalised Interest
Most borrowers choose capitalised interest to avoid servicing two mortgages simultaneously.
Bridge loans require clear exit strategies. Luminate will want to know:
Having backup plans shows you've thought through scenarios.
Let's be transparent about bridge loan costs with a realistic example.
| Cost Item | Amount | When Paid | Notes |
|---|---|---|---|
| Interest Rate | 10.5% p.a. | Capitalised or monthly | $26,250 for 6 months |
| Establishment Fee | $7,500 | Upfront | 1.5% of loan amount |
| Valuation | $1,200 | Upfront | Depends on property type/location |
| Legal Fees (Luminate) | $1,800 | Upfront | Documentation and registration |
| Legal Fees (Your Solicitor) | $2,000 | Upfront | Your independent advice |
| Extension Fee (if needed) | $0-$2,500 | If applicable | If you need more time |
| Early Repayment Fee | $0 | N/A | Most bridge loans allow free early repayment |
| TOTAL | $38,750 | For 6-month bridge |
For an $850k property, $38,750 represents 4.6% of the property value.
Consider the alternatives:
Alternative 1: Rent while you sell
Alternative 2: Make purchase conditional on sale
Alternative 3: Wait to purchase
In most scenarios, the bridge loan is the most cost-effective and least disruptive option.
Property Information:
Financial Information:
Exit Strategy:
| Stage | Timeline | What Happens |
|---|---|---|
| Initial Inquiry | Day 1 | You contact Luminate with your scenario |
| Preliminary Assessment | Day 1-2 | We review basic numbers and confirm feasibility |
| Formal Application | Day 2-3 | You provide all documentation |
| Valuation | Day 3-5 | Independent valuation of your current property |
| Credit Assessment | Day 3-5 | We review your financial position |
| Approval | Day 5-7 | Formal loan offer issued |
| Documentation | Day 7-10 | Loan agreements prepared and signed |
| Settlement | Day 10-14 | Funds released to your solicitor |
Total timeline: 10-14 days from first contact to funds available.
For urgent situations, we can move faster—we've settled bridge loans in 5-7 days when necessary.
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Yes, but we'll want to see a clear and realistic marketing plan. We may require you to engage an agent and list the property within a specified timeframe (usually 30-60 days). We assess whether your property is realistically saleable within the loan term.
Most bridge loans include extension options. Typically:
We'll review your marketing strategy, pricing, and market conditions. If the property is priced realistically and being actively marketed, extensions are usually granted.
Alternatively, you might:
You can keep it! Many borrowers initially plan to sell, then realize they can afford to keep their original property as an investment. If this happens:
Bridge loans provide flexibility to change your strategy based on circumstances.
Perfect! Most bridge loans have no early repayment penalties. If you sell in 3 months instead of 6, you:
This is different from some mortgage products that penalize early repayment.
Generally no. Bridge loans are secured against equity in your current property. If you don't own property yet, there's nothing to "bridge" from.
For first home buyers in special circumstances (like a very tight settlement deadline), other urgent lending options might apply. See our guide on Emergency Settlement Funding.
Yes, banks are comfortable with bridge loans as long as:
We work with your mortgage broker or bank to ensure they understand the structure and your strategy.
This is a risk to consider. If property values fall significantly:
Risk mitigation strategies:
In stable markets with realistic pricing, this risk is low. In volatile or declining markets, it's worth careful consideration.
As a rough guide:
Example:
After a $250k bridge loan:
This is too high for most lenders. You'd need more equity or a smaller bridge amount.
Better example:
After a $250k bridge loan:
This is comfortable and leaves room for market fluctuations.
Use this checklist to assess whether you're likely to qualify:
If you ticked most of these boxes, you're likely a good candidate for a residential bridge loan.
The biggest mistake bridge loan borrowers make is overpricing their current property. Remember:
Strategy: Get multiple appraisals. If 3 agents say $850-880k, don't list at $950k hoping for the best.
Before you even apply for the bridge loan:
This shows Luminate you're serious about the exit strategy and helps with approval.
If you're moving into your new property immediately, use the early weeks to:
Don't waste the bridge period—get to market as soon as reasonable.
Even with capitalised interest, maintain some cash reserves:
Recommended buffer: 3-6 months of combined property expenses.
Good communication prevents problems:
We're invested in your success. We want you to sell well and exit the loan comfortably.
Before committing to a bridge loan, consider whether these alternatives might work:
How it works: Make your purchase conditional on selling your current property
Pros:
Cons:
Best for: Buyer's markets, motivated vendors, less competitive properties
How it works: Increase your current mortgage to release equity for deposit
Pros:
Cons:
Best for: Situations where you have time and strong equity position
How it works: Sell your current property first, negotiate to rent it back from buyers for 3-6 months while you find your next home
Pros:
Cons:
Best for: Sellers' markets where you need cash to compete, flexible buyers
How it works: Borrow deposit funds from family, secured or unsecured
Pros:
Cons:
Best for: Those with family who can help and want to avoid institutional lending
Residential bridge loans solve a common problem: wanting to buy before you sell. While they cost more than traditional mortgages, they provide speed, flexibility, and certainty when timing is critical.
A bridge loan makes sense when:
Get expert assessment of your bridge loan options and clear direction forward.
Contact Luminate Financial Group:
📞 Call 0800 333 400
📧 Email askus@luminate.co.nz
🌐 Visit luminate.co.nz
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Ready to secure your next home without waiting for your current property to sell? Understanding bridge loan structures and costs is the first step toward making confident property decisions. Contact Luminate Financial Group to discuss how our residential bridge loan expertise can help you buy your dream home now while strategically managing your current property sale.