Singapore’s private property prices rose 0.9% from the last three months. This rise came despite the government re-imposing a few COVID-19 safety restrictions. So if you’re looking to purchase a new home, be prepared for higher prices.
But what if you’re hoping to sell off your current home but need help financing your next property purchase? If that’s the case, you can consider getting a bridging loan.
A bridging loan will help you make up for the monetary gap. Want to learn more? Read on.
Bridging Loan In A Nutshell
As the name suggests, a bridging loan “bridges” the gap between the time you need to raise the down payment for a new property and when the sales proceeds come in from your previous property.
This is a type of short-term loan usually taken by people who are planning to sell their old property for an upgrade or downgrade. Do not confuse it with the Temporary Bridging Loan Programme (TBLP), which is a government-assisted loan to help enterprises access working capital.
Here are a few things you need to know about bridging loans offered by banks:
|Standard Bank Bridging Loan|
|Maximum Amount||The maximum loan amount you can borrow is limited by the net proceeds and CPF balances from the approved sale of your existing home.|
|Maximum Tenure||This type of loan must be settled within 6 months.|
|Interest Rate||It depends on the bank or financial institutions. Typically, interest rates range from 5% p.a. to 6% p.a.|
If for some reason you don’t qualify for a bank bridging loan, you can always consider the financial assistance offered by licensed moneylenders. Here’s what you need to know:
|Moneylender Bridging Loan|
|Maximum Amount||Up to 6x your monthly salary|
|Maximum Tenure||Up to 1 month or until the property’s completion date|
Example Bridging Loan Scenario
Let’s take a look at this table:
|Financing a S$1,000,000 property purchase|
|5% x S$1,000,000 = S$50,000|
(20% cash and/or CPF funds)
|20% x S$1,000,000 = S$200,000|
(Assuming you qualify for maximum 75% Loan-to-Value)
|75% x S$1,000,000 = S$750,000|
Say you’ve found a new condominium you want to buy and you’re ready to sign the Option to Purchase. At this point, you’ll need to pay a down payment. However, the sales proceeds from your existing HDB flat will not come in until 5 months later.
Assuming you have paid the initial 5% cash downpayment, but don’t have sufficient funds from the remaining 20%. On top of that, your next home loan is still pending approval.
This is where a bridging loan comes in to help.
Bridging loans can cover the remaining amount you need beyond the loan-to-value (LTV) ratio you’re applying for. This means you can borrow up to 25% of the purchase price of the new home as long as the sales proceeds of your existing property will cover the loan.
Reasons To Take Out A Bridging Loan
- If your property was sold as part of a collective property sale: Owners of residential homes sold as part of an en bloc sale are encouraged to quickly secure a new property.
Bridging financing can help provide the funds they need. You wouldn’t want to wait several months when housing prices are increasing. You will want to secure your new place as soon as possible.
- When you’re selling your old property after renovations are done: To sell your old home at a good value, you may want to do some renovations.
However, home renovations may deplete your cash reserves. If this is the case, then a bridging loan can help. Another option is to take a renovation loan for the old property instead.
- When you need to upgrade your property: This is one of the most common reasons for taking a bridging loan. For instance, you may want to sell your old HDB flat to purchase private property.
This may require a considerably large down payment. And unless you have a large amount of cash on hand, a bridging loan may help finance the down payment and other fees.
Factors To Consider When Getting A Bridging Loan
Compared to standard home loans, bridging loans are much more expensive. That said, bridging loan interest rates are much higher. Typically, the bank rates range from 5% to 6% p.a.
However, depending on the bank or financial institution, you have the option to pay off the interest first. Then you can pay off the bridging loan amount once you’ve collected the sales proceeds on your old property.
Licensed moneylenders, on the other hand, can only charge a maximum interest rate of 4% per month. This cap applies regardless of your income or whether the loans are secured or unsecured.
Before taking out a bridging loan, consider these questions:
- Do you have sufficient savings in the event your income won’t be enough to cover the monthly repayments?
- Can you afford the repayments in addition to the mortgage of your new home?
Keep in mind that bridging loans come with interest costs. On top of that, if you fail to pay on time, you’ll incur late interest rates and fees. That said, you need to take into account whether you will be able to make the monthly repayments.
As previously mentioned, a standard bridging loan can finance up to 25% of your new property’s purchase price. But just because you can borrow that much, doesn’t mean you should.
With the high-interest rate and short loan tenure, it’s best to borrow only what you need. Take out only the loan amount to cover the down payment and complete your property transaction.
The loan tenure varies depending on the bank or financial institution. But typically, the repayment period for banks is within 6 months. That said, you need to carefully evaluate how much you’re going to borrow. The interest rates and loan tenure can rack up monthly loan repayments.
Just like any type of loan, a bridging loan entails risks. In most cases, bridging loans will use your property as collateral. On top of that, you’ll also be taking out a huge property loan before you’ll receive the sales proceeds of your old home.
Bridging loans also have higher interest rates and a very short repayment period. So take these factors into consideration.
In the worst case where the sale of your old property fails to go through, ask your loan provider if they have any “exit clauses”. And in such a case, will there be any penalties?
The terms and conditions of a bridging loan vary from bank to bank. So make sure to understand the risks involved and take these into account when making a decision.
Types of Bridging Loans
There are two types of bridging loans in Singapore. But while these two exist in theory, property buyers don’t have to worry about them too much.
1. Capitalised Interest Bridging Loan
With this type of bridging loan, the bank will cover the entire purchase of your new property. You’ll only start repaying the mortgage once your old house is sold. This is a good option if you don’t want to have two different loans at the same time.
2. Simultaneous Repayment Bridging Loan
The simultaneous repayment bridging loan allows you to pay off the home loan for your new property and the bridging loan at the same time.
With this loan, you’ll be given 12 months to complete your property sale and commence your loan repayment.
However, in Singapore, bridging loans must be repaid within 6 months. That said, the difference between the two types becomes irrelevant. You only need to ask yourself whether you want to borrow just enough to pay for the down payment or to borrow up to 25% and include a portion of the home loan as well.
Note: These two types of bridging loans do not apply to moneylenders. If you’re borrowing from a licensed lender, you’ll have to repay the loan within a month or until your property’s completion date. Additionally, depending on your income, you can borrow up to 6x your salary.
Best Bridging Loans in Singapore
|Financial Institution||Interest Rate||Loan Tenure||Property Type|
|DBS Bridging Loan||4.25% p.a.||Up to 6 months||All property types|
|Standard Chartered HDB Bridging Loan||3M SIBOR + 2.00% p.a.||Up to 6 months||HDB|
|UOB HDB Home Loans||4% to 5% p.a.||Up to 6 months||HDB|
|365 Credit Solutions||1% to 4% monthly||Up to 1 month only or until the property’s completion date||All property types|
Frequently Asked Questions About Bridging Loans
1. Can I Use CPF To Repay My Bridging Loan?
Yes, you can. Once you receive the sales proceeds from the sales of your old property and your CPF savings are refunded, you can use your CPF funds to repay the bridging loan. However, interest must be paid with cash.
For licensed moneylenders, you must repay your bridging loan either by cash or bank transfer.
2. What Is The Maximum Loan Amount For A Bridging Loan?
It varies from bank to bank. Typically, you can borrow up to 25% of the purchase price of the new property. That said, you can borrow only the amount you need for down payment or borrow up to the loan cap so you can use the bridging loan for a portion of the home loan itself.
Another option is to take a loan from a licensed moneylender. Depending on your monthly income, you can borrow up to 6x your monthly salary. This is a great option if you need fast cash to pay for down payments or property-related fees.
3. How Long Before A Bridging Loan Gets Approved?
This will vary between different banks. Additionally, it also depends on where your home loan application stands in the approval process.
However, if you apply from a licensed moneylender, your bridging loan can be approved within 30 minutes. Just make sure that you fit the eligibility requirements and have all the necessary documents.
4. Will I Qualify For A Bridging Loan With A Bad Credit?
Each bank and financial institution have a different risk appetite. That said, applicants with bad credit will be thoroughly assessed since they will be considered as having a higher risk of defaulting on a loan. Most of the time, applicants with bad credit will not qualify for a loan.
However, borrowers have other options. They can consider taking a bridging loan from a licensed moneylender in Singapore. These accredited moneylenders have a less stringent application process.
- A bridging loan “bridges” the gap between the time you need to raise funds to pay for the down payment for a new property and when you will receive the sales proceeds from your previous property.
- Bridging loans are short-term loans with an interest rate that ranges between 5% p.a. to 6% p.a. and must be settled within 6 months.
- Licensed moneylenders in Singapore also offer bridging loans at an interest rate of up to 4% and must be settled when the sales of property are completed
- Compared to standard home loans, bridging loans are much more expensive.
A bridging loan is a good option when you need extra funds to pay for the down payment as you wait for your old property to be sold.
Need urgent funds? Consider taking a bridging loan from a licensed moneylender in Singapore like 365 Credit Solutions. They are the leading licensed moneylending business in Singapore and can provide you with bridging loan packages that will suit your needs.