Selling your property has never been slower in Singapore. According to Property Guru, it can take as much as six months before you can finally sell your property.
At this rate, a seller that puts up their property with a huge discount to rush its sales might sell their home to a buyer with ready cash even if they initially reserved the property to you at zero cost. Thanks to a bridging loan, you can pay for this property’s down payment while waiting for your old property to sell
Despite their convenience, there are associated risks with a bridging property loan that you should examine carefully before taking them on.
What is a Bridging Loan
A bridging loan is a loan that helps you to borrow a down payment for your home purchase. It is an interest-only type of loan that allows the borrower to use the borrowed money for other purposes such as moving expenses, contractor fees, and third-party assessments. A bridging loan is also known as an interim mortgage or short-term home loan.
As we’ve explained earlier, banks offer bridging loans to homebuyers that have zero initial capital to pay the property’s down payment. Buyers taking advantage of a home seller’s discount are in the perfect position to use bridging loans to take their initial steps to property purchase.
What Are The Different Types of Bridging Loans?
Two kinds of bridging loans exist, these are:
Capitalised Interest Bridging Loan
This loan has a lender charge the interest on your loan only after you sell your property. You agree on a fixed equity value that pays off your principal balance, and the lender agrees to include the interest once you confirm your property’s sale. Loans of this type typically have a fixed property sales deadline.
Simultaneous Repayment Bridging Loan
A simultaneous repayment bridge loan is a loan that borrows from recent income, recent property, and/or recent sales. The borrower is required to repay the loan with interest at the end of a set period of time or when a certain event occurs.
Best Bridging Loans in Singapore
Here are some of the best bridging loans in Singapore if you plan to buy new property.
|DBS Bridging Loan||Standard Chartered’s HDB Bridging Loan||UOB HDB Home Loan||Maybank HDB Home Loan|
|Interest rate||Prime rate||3-Months Sibor + 2% annual interest||4% to 5%||1.33% to 1.60%|
|Tenure||Up to 6 months||Up to 6 months||Up to 6 months||1-4 Years|
|Property type||All property types||HDB||HDB||HDB|
Alternative Bridging Loan Option Aside From Banks: Licensed Moneylenders
Singapore’s licensed moneylending industry can provide you up to six times your monthly salary for a bridging loan, making them excellent substitutes for bank bridging loan financing.
All moneylending activities in Singapore have comprehensive regulation and monitoring from the Ministry of Law and Registry of Moneylenders. Both Singaporeans and foreigners can use their bridging loan service to pay a seller’s time-sensitive down payment.
What Are The Factors To Consider When Getting a Bridging Loan?
To find the best bridging loan while waiting for your old property’s net sales proceeds, take note of the following.
The main purpose of a bridging loan is to bridge the gap between your existing loan and a subsequent loan. A low amount won’t fulfill your objective of providing rush home sellers with enough down payment.
However, when the amount and interest rate of a loan are higher, it exposes you to a lot more risk. If you cannot handle the repayments, you will have to pay back more than what you borrowed. It is important to do your research before applying for any bridging loans.
When it comes to paying your bills, high-interest rates can be a real challenge. They make it difficult to save money in the short term and are quite damaging for your financial future. If you’re struggling to make ends meet, don’t take out a bridging loan with high-interest rates.
Monthly loan repayments ensure that you get the reward of getting interest-free loans. However, if you make a late payment, your risk of indebtedness increases. When your loan starts to accrue interest while you are paying it back, it becomes more difficult to keep up with repayments. Monthly payments on time will provide a smooth loan experience and keep your interest rates low.
We highly recommend that you pay your bridging loan as quickly as possible to avoid pushing your repayments on top of your property’s purchase price. It’s helpful to use bridging loans with long terms, but you put your property transaction at a high risk of debt because of consistent interest rate increases.
Bridging loans are essentially a type of short-term loan to help you bridge the gap between mortgage repayments. However, if you fail to sell your old property at an ideal price, you have to pay for both the property payments and bridging loan repayments, which is a situation that’s terribly burdensome for borrowers.
Let’s answer some frequently asked questions.
Who Can Get a Bridging Loan?
Anyone who has an HDB Option-To-Purchase (OTP) and plans to sell their property can apply and pass a bridging loan. Alternatively, homeowners planning to sell their home to purchase a new property that is non-HDB can use bridging loans to have enough working capital to pay for the property’s down payment.
Can Bridging Loans Pay For The Entire Property Value?
A bridging loan typically comes from an external source such as a bank or building society. It’s meant to buy time while the borrower waits for their new mortgage application to be accepted. Additionally, it has a high-interest rate than long-term mortgages, making bridging loans less-than-ideal full property financing options.
Are Bridging Loans Only for HDB Flat Purchases?
You can use bridging loans to pay the down payment for an HDB flat when it’s challenging to raise the full amount of the down payment for the property. Alternatively, you can use bridging loans to purchase condominiums and other real estates.
With demand for HDB flats reaching its highest levels in the last 12 years, many prospective home buyers are struggling to raise the full amount of a down payment. This often forces them to consider purchasing an HDB flat with a bridging loan.
What’s the Difference Between a Temporary Bridging Loan Programme and Home Buying Bridging Loan?
Singapore’s temporary bridging loan focuses on providing tailored business financing to help companies transition from traditional to digital business platforms. It’s exclusive to Singapore’s small and medium enterprises only.
On the other hand, Singapore’s home-buying bridging loan is the item we’ve described and continuously talked about in this post. This financial product helps homeowners buy a property in a situation where time isn’t a leisure in benefitting from the seller’s high rush selling discount.
Should I Use Capitalised Interest or Simultaneous Payment Bridging Loans?
The answer to this question is subjective because the answer vastly depends on your current financial state. If you plan to pay your bridging loan quickly, you can use the simultaneous payment to pay lower interest. On the other hand, it’s worth paying a higher interest rate that allows you to stretch out and make your finances much more manageable in the future.
Can I Use Bridging Loans As Substitutes For Personal Loans?
Bridging loans are a type of loan that can be used to bridge the gap between what a borrower is earning and what they need for living expenses. They can serve as a substitute for personal loans with a few caveats, such as having collateral that you need to sell to pay back your bridging loan completely.
Banks and other financial institutions provide ample bridging for borrowers with collateral. However, if you don’t want to talk about your loan’s purpose, a personal loan is the best alternative.
Can I Use CPF To Pay My Bridging Loans?
Singapore allows you to use your Central Provident Fund (CPF) savings to pay for your bridging loan. However, you can only pay your principal through your property sale and the loan’s interest rate through cash.
Are Bridging Loans Necessary For My Next Property Purchase?
Bridging loans are designed to help you purchase a new property in the short term while you save up for the down payment on your next home. They are also helpful if you want to move or refinance before securing a major loan. Thus, if you have saved enough for a down payment, you don’t have any need for bridging loans.
Can a Personal Loan Work as a Bridging Loan Substitute?
Bridging loans are not as expensive as it can get you some breathing room before taking out the next step of your financial journey. They do have their limitations, though.
Most bridging loans require you to repay them in full, whereas personal loans can be repaid over time. There is also no guarantee that you will be able to sell your private property once the loan comes due, which would make paying off the bridging loan difficult in some cases.
To Sum It All Up
- Bridging loans help Singaporean homebuyers have enough to pay for a property’s down payment value.
- Bridging loans can have the same value as personal loans, but their terms and conditions are vastly different
- The net sale proceeds can pay back your bridging loan.
- You can choose to pay through capitalized interest or simultaneous payment methods.
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