How much does a bridging loan cost in NZ? A 4-month worked example

Examples are illustrative: current home worth $900,000 with a $300,000 mortgage, buying at $1,100,000, bridging interest at 6.40% floating for 4 months, capitalised. Lender policies and pricing vary, so check the current position with the lender.

The most common call I get from existing homeowners goes like this: “We’ve found the house. We haven’t sold ours. Now what?” Bridging is the usual answer, but it’s easy to misjudge the numbers.

A bridging loan worked example: peak debt and end debt

Two numbers matter. Peak debt is your existing mortgage plus the new borrowing, the most you’ll owe at any point. End debt is what’s left after your old home sells. The bank tests that you can afford both.

So you’d end up with a mortgage of about $553,500 on a $1.1 million home, roughly 50% of its value. The bridging interest is the real cost of buying first. In this example it’s about $23,500, and it grows every month your old home stays unsold.

Closed or open bridging loan?

Closed bridging means your existing home has already sold unconditionally. The end date is known, so banks like it.

Open bridging means it hasn’t sold yet, or the sale isn’t unconditional. That’s riskier for the lender, so you’ll typically need a lot of equity (combined LVR often 70–80%), or you’ll end up with a non-bank lender at a higher rate and fees.

Terms vary by lender. As a guide, up to 6 months is common for an established home and up to 12 months if you’re building. Each bank also decides whether it offers bridging at all.

What a bridging loan costs

Bridging is usually charged at the lender’s floating rate, not a fixed rate, and floating rates at the main banks are shown on their websites; this example uses an illustrative 6.40%. Non-bank bridging costs more. Get a written quote before you commit.

Most of the cost is the interest, so time is the thing to manage. If your fixed-rate loan is already running, read fixed or floating and mortgage break fees first. Selling your home may trigger a break fee on any fixed portion you repay. Ask the bank whether you can port the loan to the new property instead.

One point to check with your lender: bridging loans may be treated differently under the Reserve Bank’s LVR and DTI limits. Either way, the bank still has to be satisfied you can afford the loan, so don’t treat any exemption as a green light.

How the bridging bill changes if the sale is late or cheaper

Same example: $1,100,000 bridged at an illustrative 6.40%. Interest here is simple, not compounded, so a lender that capitalises monthly will show a slightly higher figure. Treat these as a guide, not a quote.

Then the sale price. At the base case, net sale proceeds of $870,000 leave end debt of about $553,500. If it sells for $100,000 less, proceeds are $770,000 and end debt rises to about $653,500. If it also takes six months, add the extra interest on top. Worst case here is roughly $665,200 (about 60% of the new home’s value): $1,400,000 + $35,200 – $770,000.

Questions to ask a lender before you sign: Is there an establishment fee? Can the interest be capitalised? What is the maximum term? What happens at the end of that term if the sale has not settled? Does selling trigger a break fee on my fixed loan? Ask your lawyer to check the settlement dates on both properties line up.

Illustrative figures only. Rates, fees and terms vary by lender. Not personalised advice.

The risk: your home sells for less

This is what I’d stress-test before anyone signs. Say your home sells for $100,000 less, so net proceeds are $770,000 instead of $870,000. Your end debt becomes about $653,500, roughly 59% of the new home’s value. Still manageable here, but your repayments are higher than you planned.

A slow sale does the same thing through interest. Another month adds roughly $5,900 in this example. So before I put a bridging structure together I check three things:

• the end debt still works if the sale price drops by 10%
• you can carry the bridging interest if the sale takes 2 extra months
• you have a realistic, evidence-backed estimate of what your home will sell for

If the numbers are tight, the better move is sometimes to sell first and rent for a short time, or to make the new offer conditional on sale. I’d rather tell you that early than after the settlement date. My page on changing homes covers the options.

Where to get the full detail

For the full picture of how lenders assess a bridge, open versus closed bridging, who it suits and the steps to get one, read the bridging finance NZ guide. Then talk to me before you make an offer, and talk to your lawyer about the settlement dates on both homes.

Common questions

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This article is general information only and isn’t personalised financial advice. Figures are illustrative and based on the assumptions shown. Mortgage Sense is a trading name of Yatin Kainth, a Financial Adviser (FSP1007497) providing advice under the Mortgage Managers licence (North West Group Holdings Ltd, FSP682791). See the Disclosure Statement.