Bridge financing during property purchase: Online in 3 steps for interim funding
15 May 2025
3
Minutes
Katrin Straub
CEO at nextsure
You've found your dream property, but your old home hasn't been sold yet? Bridging finance can cover this financial gap for up to 24 months. Discover how you can easily manage this process online and secure crucial benefits.
The topic in brief and concise terms
A bridging loan is a short-term credit (max. 24 months) that serves as equity for the main financing.
The interest rates are one to five percent higher than those for construction financing, but repayment at the end is possible without prepayment penalties.
The biggest risk is a delay in selling the old property; therefore, a realistic price and a time buffer are crucial.
The Foundation: What Bridge Financing Achieves
A bridging loan is a short-term loan that covers a temporary financing gap. It becomes relevant when you need capital for a property purchase but this is only going to be available in the near future - typically in six to 24 months. A typical case is the acquisition of a new house for 500,000 euros, while the proceeds from the sale of your old property valued at 400,000 euros are still pending. The bank provides you with these 400,000 euros in advance. This capital is counted as equity in the actual construction financing, which often leads to better interest conditions. The bridging loan is repaid as soon as your tied-up capital, such as the proceeds of the sale, becomes available. This mechanism gives you the necessary flexibility to act quickly in the property market. Next, we look at the specific costs associated with this flexibility.
The costs in detail: analyze interest rates and terms
The costs of bridge financing are higher than those of long-term construction financing. Banks calculate a risk premium since the sale proceeds of the old property could be lower than expected. This interest surcharge ranges from one to five percent, depending on creditworthiness and market conditions. During the term, you usually only pay the interest, with the repayment made in one sum at the end. A significant advantage is that no early repayment penalty is incurred for this final repayment if you repay the amount earlier than planned. A careful household calculation helps to realistically assess the monthly interest burden. The exact requirements for approval are the next logical step.
The Path to Credit: Requirements and Process
Banks offer interim financing only under certain conditions. The most important requirement is proof that the capital needed for repayment will be securely available. A notarised draft purchase agreement for your old property is the best evidence. Additionally, the bank checks your general creditworthiness, usually through a Schufa report. The amount of interim financing is limited to the value of the expected capital inflow. The process can be divided into three clear steps:
Prepare documents: Gather all documents such as the purchase contract for the new property, the proof of sale of the old property, and creditworthiness certificates.
Compare offers: Obtain offers from several banks, ideally also from the bank providing your affordable mortgage financing.
Review and finalise contract: After approval, the loan agreement is drawn up and the amount is disbursed.
However, even with a smooth process, there are risks you should be aware of and manage.
Risk Management: Potential Obstacles and How to Overcome Them
The greatest risk of bridge financing is the delay in selling the old property. If the sale fails within the agreed maximum term of 24 months, there is a risk of a financing shortfall, as the bridging loan becomes due. If you achieve a lower sales price than planned, a funding gap arises which you must cover with other means. Another risk exists with variable interest rate loans, as the interest rates can increase during the term.
Our expert tip: Set the sale price of your old property realistically, preferably based on a professional property valuation. Plan for a time buffer of at least six months for the sale, to ensure you do not come under pressure. Timely follow-up financing can also provide security. These precautions lead us to the legal framework conditions that you must observe.
The legal framework: What must be included in the contract
Legally, bridging finance is a loan agreement according to Section 488 of the German Civil Code (BGB). It should clearly regulate all essential points to avoid misunderstandings. Pay attention to the exact duration, the interest rate, and the conditions for final repayment. It is crucial that the right to early repayment without additional costs (early repayment penalty) is stipulated. The bank often requires the registration of a land charge for the property to be sold as security. The following points should be clearly defined in the contract:
The exact loan amount
The fixed or variable interest rate
The maximum term (e.g. 24 months)
The precise definition of the repayment event (e.g. receipt of the purchase price)
The securities (e.g. registration of a land charge)
When the conditions are clear, the question arises as to whether there are sensible alternatives.
Consider alternatives: When other approaches make more sense
Although interim financing is often the best solution, alternatives exist. One option is a variable loan, which, unlike interim financing, does not have a fixed term and can usually be cancelled quarterly. This offers more flexibility if the timing of your property's sale is completely uncertain, but is often associated with even higher interest rates. Another option is to wait for the sale of the old property before buying a new one. This eliminates the financing risk, but it can mean you miss out on your dream property. A bridging loan until the sale is a special form that is tailored precisely for this situation. The decision depends on your risk tolerance and the urgency of the property purchase.
Request a personalised risk analysis now
Bridge financing when purchasing real estate is an effective tool for acting quickly and flexibly. However, it requires careful planning and a realistic assessment of one's own financial situation. A professional analysis of your individual circumstances is the first step towards secure financing. Get your insurance situation checked free of charge and receive concrete optimization suggestions.
More useful links
Gabler Wirtschaftslexikon provides a detailed definition of interim financing.
The Digital Dictionary of the German Language (DWDS) offers a linguistic definition of interim financing.
The Sparkasse offers a comprehensive guide to interim financing when purchasing property.
The VR Banken provide information about interim financing within the context of property financing.
Wikipedia provides a comprehensive overview of the topic of interim financing.
Wikipedia explains the related term of bridge financing.
Wikipedia offers insights into the concept of pre-financing.
FAQ
What is the difference between interim financing and preliminary financing?
In the case of interim financing, the follow-up financing (e.g., through sale proceeds) is already determined. With advance financing, the subsequent repayment is not yet secured, which means a higher risk for the bank and generally higher interest rates for you.
What is the maximum term of a bridge loan?
The term of a bridge loan is generally limited to a maximum of 24 months. During this period, the loan must be fully repaid.
Is interim financing recognized as equity?
Yes, banks classify capital from interim financing as equity for long-term construction financing. This can improve the loan-to-value ratio and lead to better interest rates for the main loan.
Who benefits from interim financing?
It is worthwhile for property owners who purchase a new property before the old one is sold, or for individuals waiting for the payout of a life insurance policy or a building society savings contract to finance their purchase.
Do I have to make repayment instalments during the term?
No, interim financing is typically a bullet loan. This means you only pay the interest during the term. The entire loan amount is paid off in a single payment at the end.
Do all banks offer bridging loans?
No, not all banks offer bridging loans, as the administrative effort for the short term is relatively high. It is often only offered in combination with the main financing at the same bank.
