Bridging Loan vs Deposit Bond – Which One’s Right When Buying Before You Sell?
Buying a New Home Before Selling the Old One? You’ve Got Options
If you’re planning to purchase a new property before your current one settles, you might find yourself in a financial limbo—especially when it comes to paying the deposit. The good news? There are two common solutions: a bridging loan or a deposit bond.
At CBM Mortgages, we help clients across Sydney and beyond navigate this exact scenario every week. Let’s break down the pros, cons, and key differences between these two options.
Option 1: Bridging Loan
What Is a Bridging Loan?
A bridging loan is a short-term home loan that helps you buy a new property before selling your existing one. It essentially “bridges” the gap between the two transactions.
How It Works
- Loan terms typically range from 6 to 12 months
- You may be able to borrow against the equity in your current home
- Interest rates are usually higher than standard home loans
- You’ll be managing two loans at once—your existing mortgage and the bridging loan
What to Watch Out For
Bridging loans can be helpful, but they come with risk. If your current property doesn’t sell as quickly—or for as much—as expected, you could be left juggling peak debt and higher repayments.
That’s why it’s crucial to speak with a mortgage broker to assess your borrowing capacity and ensure you can service the loan under all scenarios.
Option 2: Deposit Bond
What Is a Deposit Bond?
A deposit bond is a guarantee issued by an insurer that replaces the need for a cash deposit when purchasing a property. It’s a popular option when your funds are tied up in another property or investment.
How It Works
- The bond is issued to the vendor for the full or partial deposit amount
- You pay the full purchase price at settlement, including the deposit
- If you default, the insurer pays the vendor and seeks reimbursement from you
Read our blog on low deposit home loans here
Cost Estimate
Deposit bonds are generally more affordable than bridging loans. For example, a $50,000 deposit bond on a $500,000 property (10% deposit) with a 6-month term may cost around $650, or approximately 1.3% of the deposit amount.
When It Makes Sense
Deposit bonds are ideal if:
- You’re waiting for your current property to settle
- You don’t want to liquidate other assets
- You want to attend auctions without upfront cash
Bridging Loan vs Deposit Bond – Which Should You Choose?
| Feature | Bridging Loan | Deposit Bond |
|---|---|---|
| Purpose | Finance the full purchase | Replace cash deposit |
| Term | 6–12 months | Up to 6–48 months |
| Cost | Higher interest rates | One-off fee (approx. 1.2–1.5%) |
| Risk | Higher if property doesn’t sell | Lower, but still requires repayment if default occurs |
| Best for | Buying before selling | Delayed access to deposit funds |
Both options can be effective—but the right choice depends on your financial situation, timeline, and risk appetite. That’s where we come in.
Let’s Find the Right Fit for You
At CBM Mortgages, we’ll help you:
- Compare bridging loans and deposit bonds
- Understand your borrowing power
- Choose the right strategy based on your goals
Call us today on 02 8068 0534 or get in touch online to explore your options.
Further Reading:
- Read our blog on how to purchase without a 20% deposit here
- Read our blog on how to pay off your home loan fast here
- Read our dedicated web page on refinancing here
- First Home Buyer Grants – Revenue NSW
- Are you looking for a Mortgage Broker in the Inner West
Disclaimer:
The information provided in this article is for general guidance only and does not constitute financial or legal advice. It does not consider your personal circumstances. Before making any financial decisions, seek professional advice from a licensed mortgage broker or financial consultant. This content is protected by copyright laws and may not be modified, reproduced, or republished without prior written consent.
Written by Craig McDonald 15/06/2025
