Bridge loans are often used in scenarios where a property buyer is waiting on funds from their old property but needs to immediately pay for the downpayment of the new one.
Bridging loans are also ideal for other real-estate scenarios where time is of the essence. Say, you have spotted an in-demand property at a fast-paced auction and need to secure the sale quickly. Or, perhaps you found a property you intend to rent out but don’t have funds for initial deposits in place.
With bridge loans, property buyers and investors can make a quick move and secure great property deals. Read through our guide to check some of the best Bridge loans available to property upgraders in Singapore today!
What is a Bridging Loan and How Does it Work?
Bridging loans are short-term funds used to bridge the gap to when funds become available. It is often used for real estate transactions but can also be helpful to businesses. Due to their short-termed nature, these loans often come with higher interest rates than traditional home loans.
With traditional banks, borrowers are required to pledge their property as collateral to secure the debt. Typically, the loan will last anywhere from six months to a year only. Thus, you have to make sure that you will sell your old home quickly.
Alternatively, you can also avail of an unsecured bridge loan from licensed moneylenders. Interest rates are between 1% to 4% only and you can also avail of a more flexible loan repayment period between one month or until the property is sold. HELOC or, Home Equity Line of Credit, is also another form of short-term funds to help property owners to bridge the gap. Read more on our guide on the differences between Bridging Loan and HELOC.
Below is a short illustration of how a bridge loan works:
Say, the new property you are interested in is worth S$1M. You will need to pay at least a 20% downpayment of the purchase price for the new home.
|Cash on hand||S$50,000|
|5% cash downpayment||S$50,000|
|Loanable Amount (75% LTV)||S$750,000|
With the above scenario, your cash on hand only allows you to pay for the 5% down payment. Thus, a bridge loan will come in handy for the remaining S$200,000 and other initial costs.
Types of Bridging Loans
Generally, there are two types of bridging loans in Singapore.
Capitalised interest bridging loan
Wherein the bank will pay for the entire property purchase cost. The mortgage will start once the old property is sold.
Simultaneous payment bridging loan
Brrowers will be holding two loans and will pay both simultaneously. These two types of loans are only available with banks and are not applicable to licensed moneylenders.
When Does a Bridging Loan Make Sense?
While bridge loans provide quick access to cash, it is not suited for all types of property buyers. But, it makes sense when used for the following:
- Paying for downpayment costs while waiting for the sale proceeds of the old property
- The old home is anticipated to be sold quickly
- You want to prevent a property from being foreclosed
- Securing property deals quickly at an auction
- Other time-sensitive real estate transactions
Bridging Loan Factors to Consider
Bridge loans can be a cheap and efficient solution to fund real estate transactions. But before taking the plunge, make sure you’ve considered the following factors:
Banks and other financial institutions allow up to a certain amount or the Loan-to-Value only. A standard bridging loan should only finance up to 25% of your new home. With licensed moneylenders, you can get up to six months of your monthly salary.
Bridging loan interest rates from banks may come higher than traditional loans like housing or personal loans. You may also avail of a bridge loan from licensed moneylenders at an interest rate capped between 1 to 4% per month only.
Bridge loans availed from banks typically come in shorter terms and often result in higher monthly repayments. Licensed moneylenders offer flexible terms and a borrower may request a quote to check for options and plan finances better.
Depending on the bank or lender, borrowers usually have a loan tenure of up to six months. The shorter the tenure, the higher interest rates could also be. With a licensed moneylender, you can borrow for as short as one month or until the property’s completion date.
Getting a bridging loan from a bank will always come with collateral. Thus, you are at great risk of losing your property when you default on your repayments. Bridge loans from moneylenders are less riskier as they are not secured against any collateral.
Quick Steps to Apply for a Bridging Loan
Some of the basic checks to qualify for a bridging loan from banks are your capacity to pay on time and your creditworthiness. But before qualifying for a bridge loan, banks will also check other criteria and requirements.
Those who are eligible to apply can be any of the following: (should be in the process of selling their property)
- Singapore Citizens
- Permanent Residents
- NRIC (for SCs and PRs)
- Passport (for foreigners)
- HDB flat and financial information
- Option to Purchase
- Valuation reports/Value confirmed by HDB
- Letter of Offer
- Proof of Income: CPF statements, latest payslips
- Outstanding bank loan statements
Step-by-step bridge loan application process:
- Download key documents in PDF format.
- Upload these documents to your bank’s website.
- Process your loan online and wait for approval. This process may take more than a week, depending on the bank or financial institution.
5 Best Singapore Bridging Loan
Many people do not have a significant amount of liquid cash, as most are in the form of investments. This is one reason bridging loans are essential and useful for your next property purchase. So, if you are caught up in a property transaction and need fast access to cash, here are Singapore’s best bridging loan packages.
|Bridge Loan||Type of Property||Interest||Tenure|
|DBS Bridging Loan||All property types||Prime Rate: 4.25% p.a.||Up to 6 months|
|Standard Chartered’s HDB Bridging Loan||HDB||3 months SIBOR plus 2% annual interest||Up to 6 months|
|UOB’s HDB Home Loan||HDB||4% to 5%||Up to 6 months|
|Maybank HDB Home Loan||HDB||1.33% to 1.60%||1 to 4 years|
|365 Credit Solutions Bridging Loan (Licensed moneylender, an alternative solution)||All property types||1% to 4% monthly||One month or until the property’s completion date|
Looking at the bridge loan options, the bank that offers the best loan in terms of interest rate and tenure is Maybank. However, banks require a stricter credit check and a licensed moneylender is the next best alternative. Find out more on our guide on HDB bridging Loan.
Why Get a Bridge Loan from Licensed Moneylenders?
Not everyone in Singapore has a good credit history, and not all borrowers will qualify for a bridge loan from banks.
Aside from the less stringent requirements, licensed moneylenders:
- Do not require credit score and credit history checks
- Have unsecured bridge loans (no collateral of any kind)
- Have fast loan application approvals and quick disbursal of funds (within a day after submission of requirements). Borrowers can get the funds in the lender’s office in cash.
To apply for a bridge loan, the borrower:
- At least 21 years old
- Must exercise the Option to Purchase (OTP)
- Has a minimum of S$1,500 monthly salary
- SingPass to login to CPF, HDB, IRAS
- Proof of Residence (utility bills or tenancy agreement)
- Copy of OTP
- Proof of Income
- Letter of employment (If employed for less than three months)
- Latest three months payslip
The borrower can either apply online or visit the licensed moneylender’s office.
Bridge loans have helped many home buyers settle into their dream homes. It has also helped many property investors earn well. While many banks provide excellent bridging loan offers, licensed moneylenders are also a great alternative. They offer high loan amounts, lenient credit checks, and quick disbursals of funds.
- A bridge loan interest rates range from 1-4% per month with moneylenders; 4-5% with banks.
- Licensed moneylenders offer bridge loans with faster application approvals, underwriting, and funding.
- Just like any financial decision, proper financial planning is needed to reduce the risks of getting into deeper debt or losing your property.
Need urgent financial assistance? 365 Credit Solutions is among the best legal moneylenders in Singapore. We offer affordable loan packages at competitive rates to suit your needs. Request a free quote today to know how much you can borrow.