Bridging Loans Worked Through: Peak Debt, End Debt and Capitalised Interest

In short: A bridging loan lets you buy before you sell. The numbers that matter are peak debt (what you owe while you hold both properties), the sale proceeds after selling costs, the end debt left once the old property sells, and the interest that capitalises in between. In the worked example below, a $2,720,000 peak debt becomes a $1,257,500 end debt before interest, and 12 months of capitalised interest at an example 9.5% adds about $270,000.

Key takeaways

Peak debt = existing debt + purchase price + purchase costs. Lenders usually test it against the combined value of both properties.
End debt = peak debt - net sale proceeds + capitalised interest. It has to fit an ordinary loan you can service.
Capitalised interest compounds: at an example 9.5%, twelve months adds about 9.9% to the peak debt.
In the example, selling three months late adds about $71,600 to the end debt, and selling 10% lower adds $146,250.
Banks often have you service the end debt and capitalise only the bridge; private bridging lenders more often capitalise or prepay interest on the whole facility.
Ask in writing what happens at expiry before you sign: extension, fee, rate.

What are peak debt and end debt in a bridging loan?

Bridging loans exist because property transactions rarely line up. You find the premises, investment or house you want before your existing property sells, or the purchase settles months before the sale can. For a period you own both, and the lender funds the purchase with the old property as extra security. Four numbers describe the whole loan:

Peak debt: what you owe on the day the purchase settles, made up of existing debt, the new price and purchase costs (duty, legal, valuation and loan fees).
Net sale proceeds: the expected sale price of the old property less agent's commission, marketing and legal costs.
End debt: peak debt less net sale proceeds. This is the loan you keep once the bridge is over.
Capitalised interest: interest added to the balance during the bridge instead of being paid monthly. It increases the end debt.

Lenders assess the peak against the combined value of both properties, and the end debt against the new property alone and your income. A bridge is only as sound as the end debt it leaves behind.

Worked example: how is peak debt calculated?

For illustration, a business owner owns their current premises, valued at $1,500,000, with $400,000 owing. They have signed a contract to buy larger premises for $2,200,000, settling before the old property can be sold. Purchase costs are assumed at $120,000. Transfer duty is the largest part and varies by state, price and property type, so check your state revenue office, for example Revenue NSW's transfer duty page or the SRO's land transfer duty page in Victoria.

Item	Amount
Existing debt on the current property	$400,000
Purchase price of the new property	$2,200,000
Purchase costs (illustrative: duty, legal, valuation, loan fees)	$120,000
Peak debt	$2,720,000
Combined security value ($1,500,000 + $2,200,000)	$3,700,000
Peak LVR ($2,720,000 / $3,700,000)	73.5%

Many bridging lenders cap peak LVR somewhere between 70% and 80% of combined value (indicative only; it varies by lender, property type and whether the security is residential or commercial). At 73.5% this deal sits inside a typical range but without much room, which matters if a valuer comes in under the contract price on either property. The post on LVR and equity calculations shows how lenders work out usable equity.

What does the end debt look like once the old property sells?

Assume the current premises sell for the expected $1,500,000, with selling costs of an illustrative 2.5% ($37,500):

Net sale proceeds: $1,500,000 - $37,500 = $1,462,500
End debt before interest: $2,720,000 - $1,462,500 = $1,257,500
End LVR on the new property: $1,257,500 / $2,200,000 = 57.2%

The borrower ends up with a $1,257,500 loan against a $2,200,000 property, and once the bridge ends it is serviced like any other loan. Before agreeing the bridge, a lender tests whether you can afford it at a buffered rate. For residential security, banks build in the serviceability buffer APRA kept at 3 percentage points in its 28 May 2026 update; commercial lenders apply their own sensitised rate and interest cover tests. For illustration, $1,257,500 over 25 years at an example 7% costs about $8,888 a month, and tested at 10% it is about $11,427 a month.

How much interest capitalises over 6 and 12 months?

Bridging rates vary widely by lender type and are usually priced as a margin over the lender's cost of funds, which moves with the cash rate. The RBA's cash rate target was 4.60% from 30 September 2026; check the RBA's current target, as its 2026 schedule has decisions on 3 November and 8 December. For illustration, assume a bridging rate of 9.5% a year (an example, not an offer) with interest capitalised monthly on the whole peak debt, a common private bridging structure:

Bridging period	Capitalised interest	End debt (sale at $1,500,000)	End LVR on $2,200,000
6 months	$131,784	$1,389,284	63.1%
12 months	$269,953	$1,527,453	69.4%

Because interest is charged on interest, 12 months costs a little more than twice six months. Over a year it adds about 9.9% to the peak debt, and all of it lands on the end debt: in the 12-month case the borrower carries $1,527,453 instead of $1,257,500. At the example 7% over 25 years that costs about $10,796 a month, or about $13,880 a month at a 10% test rate.

Not every structure capitalises interest on the whole peak. Many banks split the facility: you service the end debt monthly from income, and only the bridging portion (roughly the expected net sale proceeds) capitalises. At an example 7.5%, capitalised interest on a $1,462,500 bridge is about $55,708 over 6 months or $113,538 over 12 months, but you pay about $8,888 a month on the end debt throughout. Compare structures with the bridging finance calculator.

What if the sale is late or comes in lower?

Keeping the example's whole-facility structure at 9.5%, here is how the timing and price of the sale move the end debt:

Outcome	Net proceeds	End debt	End LVR on $2,200,000
Sold at $1,500,000 after 6 months	$1,462,500	$1,389,284	63.1%
Sold at $1,500,000 after 12 months	$1,462,500	$1,527,453	69.4%
Sold at $1,500,000 after 15 months	$1,462,500	$1,599,028	72.7%
Sold 10% lower, at $1,350,000, after 12 months	$1,316,250	$1,673,703	76.1%

The danger is the combination. A sale three months past a 12-month term adds about $71,600 to the end debt; a 10% lower price adds $146,250. Together they push the end LVR past what many lenders will refinance, at the moment the bridge expires. Bridging loans have a maximum term (often 6 to 12 months, indicative), and running past it can mean extension fees, default interest or a sale on the lender's timetable. See exit strategies for short-term loans for how lenders judge an exit.

Protect yourself before you sign the purchase contract: stress-test the sale price and timing, price the old property to sell rather than to test the market, and ask the lender in writing whether an extension is available, at what fee and at what rate.

How do banks, non-banks and private lenders structure bridging loans?

Lender type	Interest treatment	What they test (indicative)	Watch
Banks	End debt serviced monthly; bridging portion capitalised	Full income servicing of the end debt; may want the old property listed or under contract	Tight peak LVR caps and full documentation
Non-bank lenders	Similar split, or whole facility capitalised	Servicing with more flexible income evidence	Higher rates and fees than banks
Private lenders	Whole facility capitalised, or interest prepaid from the advance	Equity across both properties and a credible exit, with less weight on income	Short terms, establishment and exit fees, default rates

Private bridging is usually business-purpose lending secured on property, such as moving premises or buying an investment before selling another. If the loan is for a home you will live in, it is likely to be regulated consumer credit, and many private lenders do not offer that. For the wider comparison, read bridging finance: buying before you sell.

What do lenders check before agreeing a bridging loan?

Valuations on both properties by the lender's valuer, not the agent's appraisal. The peak LVR depends on both.
The sale plan: agency agreement, marketing campaign, recent comparable sales and a realistic price range.
End debt servicing: financial statements and tax returns for a business borrower, leases and rent for investment property, and existing debts.
The purchase contract: price, settlement date, any conditions, and GST if the property is commercial.
A costs schedule: duty, legal, valuation and loan fees, so the peak is not understated.
Plan B: what happens if the old property has not sold by expiry, such as a refinance of the end debt plus the unsold property, or selling the new one.

Lenders also look at the type of property being sold. A standard house or warehouse in a liquid market is an easier exit than a specialised building, a large rural holding or a property with a tenant problem, and some lenders will not bridge against the latter at all.

What are the common mistakes, and what should you do next?

Treating the agent's top-of-range appraisal as the sale price.
Forgetting selling costs, which come off the proceeds before anything repays the bridge.
Sizing the end debt before capitalised interest, then finding the refinance does not cover it.
Assuming an extension will be offered on the same terms.
Committing to the purchase before the old property is even listed.

Work out your peak debt, end debt and capitalised interest at 6, 12 and 15 months before you sign, and know which lender type suits the structure. When you have the numbers, post one bridging loan request on ADS and 200+ verified lenders and brokers can ask about it.

Frequently asked questions

What is peak debt in a bridging loan?

Peak debt is the most you will owe during the bridge: your existing loan plus the purchase price of the new property plus purchase costs such as duty, legal fees and loan fees. Lenders usually measure it against the combined value of both properties. In the worked example it is $2,720,000 against $3,700,000 of security, a peak LVR of 73.5%.

What is end debt in a bridging loan?

End debt is what remains once the old property sells: peak debt less the net sale proceeds, plus any interest capitalised during the bridge. It becomes your ongoing loan, so lenders check you can service it from income. In the example it is $1,257,500 before interest and $1,527,453 after 12 months of interest capitalised at an example 9.5%.

Do I make repayments on a bridging loan?

It depends on the structure. Many banks have you service the end debt monthly and capitalise interest only on the bridging portion. Private bridging lenders more often capitalise, or deduct in advance, the interest on the whole facility, so there are no monthly repayments but the balance grows. Either way the interest is paid eventually, usually from the sale.

How long can a bridging loan run?

Terms are commonly around 6 to 12 months (indicative; it varies by lender), sometimes with an extension option at a fee. Running past the term can trigger default interest or enforcement, so ask before signing what happens at expiry, and price the old property to sell well inside the term.

What happens if my property sells for less than expected?

The shortfall lands on the end debt. In the example, a 10% lower price adds $146,250 and lifts the end LVR from 69.4% to 76.1% after 12 months. If the end debt is more than a lender will refinance, you may need to add cash, offer other security or sell the new property. Stress-test a lower price before you sign the purchase contract.

Are bridging loans regulated?

A bridging loan for a home you will live in is generally regulated consumer credit, with responsible lending obligations. Bridging loans for business purposes, such as moving premises or buying an investment, often sit outside those rules and are offered on each lender's own terms. Ask the lender which category your loan falls in, and get independent advice on the contract.

Sources

Cash rate target — Reserve Bank of Australia
APRA maintains current macroprudential policy settings (28 May 2026) — Australian Prudential Regulation Authority
Transfer duty — Revenue NSW
Land transfer duty — State Revenue Office Victoria

Rates checked as at 24 October 2026. Interest rates, lender policies and government schemes change frequently. Figures in this article are illustrative and were accurate at the date shown.

General advice warning: This article contains general information only. It does not take into account your objectives, financial situation or needs, and it is not personal credit or financial advice. Consider whether it is appropriate for you and seek advice from a licensed credit representative before acting.

Any interest rate shown is an example only and is not an offer of credit. Where a rate is quoted, the applicable comparison rate is available from the relevant lender and should be considered alongside it.