In relation to the home buying process (although they are also available in other circumstances), a bridging loan is designed to bridge the financial gap that can all too easily develop between the buying of your new home and the selling of your old property. The most common situation occurs when you've found your new house and need to complete the buying process by paying the vendor on an agreed date, but you haven't yet either found a buyer for your old property or the completion date for the finalization of your home sale is delayed by a period of days or possibly weeks.If you're in this situation, you can approach your lender for a loan that will cover the shortfall in funds.

Generally, there are two options available with bridging loans. The first option is known as a 'closed' bridging loan. This is for the situation where completion on both properties (the one you are buying and your old property) has already occurred but there may be some delay in moving; this can be quite common when you are part of a chain. The second option is known as an 'open' bridging loan where you are still waiting for the exchange of contracts to occur on your old home: the property you are selling.

By their very nature, bridging loans tend to be short term loans, usually covering a period from as little as a couple of weeks to several months. Loan amounts vary from lender to lender, but in the case of bridging loans, as they relate to home buying, many lenders have maximum loan limits of up to $1,000,000, which will more than cover the cost of the average home. In terms of the interest rate you are likely to pay, most lenders will typically charge around 2% above their base rate. There may also be a difference between the rate charged for 'closed' and 'open' loans. In addition to this, there will be an arrangement fee payable to your lender.