A bridging loan in Singapore is a short-term loan that helps property buyers bridge the gap between purchasing a new property and selling their existing property.
It is a popular option for those looking to purchase a new home before selling their current one, as it allows them to secure a new property without having to wait for the sale of their current home to complete.
This article will explore the various types of bridging loans available in Singapore, the associated bridging loan interest rates, and how to apply for one.
We will also discuss what is a bridging loan in Singapore, how much is a bridging loan, and what to know before getting one.
What Is A Bridging Loan?
Let’s answer the query about what is a bridging loan. The meaning of a bridging loan is a short-term loan that is used to bridge the gap between the purchase of a new property and the sale of an existing property.
It’s intended to assist real estate buyers in bridging the gap between acquiring a new property and selling their current property.
Property buyers who need to sell their current home before they can afford to buy a new one frequently turn to bridging loans.
With this kind of loan, you can move into your new home before the sale of your old one is finalised. It’s crucial to assess your capacity to repay a bridging loan because it’s meant to be paid back within a short period.
Capitalised Interest Bridging Loan Vs Simultaneous Repayment Bridging Loans
Two main types of bridging loans in Singapore are capitalised interest bridging loans and simultaneous repayment bridging loans. A capitalised interest bridging loan is a loan where the interest is added to the principal amount, and the borrower makes one lump sum repayment at the end of the loan term.
It covers the entire cost of the brand-new house you want to buy. With this, payments won’t start until your old house has sold. As a result, you don’t have to make payments on two loans at once.
The opposite is true of a bridge loan with simultaneous repayment. A simultaneous repayment bridging loan is a loan where the borrower makes both interest and principal payments throughout the loan term.
It can be challenging to repay both the bridging loan and your mortgage at the same time. The old property is sold to pay back the loan within a year.
How Much Is A Bridging Loan?
To know how much is a bridging loan in Singapore, we must know what factors to consider. The amount varies depending on the type of loan, the lender, and the borrower’s creditworthiness.
The value of the properties involved, the loan’s term, and the lender’s terms and conditions are other variables that can affect the cost of a bridging loan in Singapore.
On average, the interest rates for a bridging loan in Singapore range from 1.5-2.5% per month, which is relatively high compared to conventional home loans.
In addition, extra charges like legal and valuation fees might raise the loan cost. However, it’s important to note that the interest rates can be higher for those with lower credit scores or for those applying for a capitalised interest bridging loan.
Finding the best terms and rates for your particular situation requires research and comparison shopping.
What To Know Before Getting A Bridging Loan In Singapore
Before applying for a bridging loan in Singapore, it is essential to consider the following:
Your Credit Score
A good credit score is necessary to qualify for a bridging loan in Singapore. Before applying for one, make sure you have the financial means to repay the loan, including the interest, on time.
Total Loan Cost
The total cost of a bridging loan will vary depending on several variables, such as the loan amount, the term of the loan, and the interest rate. Due to the higher level of risk involved with the loan, bridging loans typically have higher interest rates than traditional mortgage loans.
Depending on the lender and the borrower’s creditworthiness, interest rates can range from about 10-15%. Additional expenses may be incurred in addition to the bridging loan interest rate when taking out the loan. Processing fees, legal fees, valuation fees, and other costs are a few examples of these.
It’s critical to compare the costs of obtaining a bridging loan from various lenders to choose the best option. Therefore, it is important to carefully review the terms and conditions of the loan before signing up.
Your Current Financial Situation
As the loan may not be enough to cover your expenses, you will need to have enough cash on hand to cover your living costs while you wait to sell your current property. If the sale of your current property takes longer than anticipated, it is crucial to have an emergency fund or savings account that can assist you in covering these costs.
It’s crucial to assess your income and expenses to ensure you have enough money to cover your living costs. It ensures that you have sufficient funds to cover any additional loan-related costs. It might entail spending money on renovations or repairs to your current home or working with a real estate agent to sell it.
Your Existing Property
Before applying for a bridging loan, it’s crucial to consider your current property. Your existing property’s condition will impact how quickly and for what price you can sell it.
Before putting your property on the market, you should check to see that it is in good shape and that any repairs needed or renovations have been completed. It can raise the likelihood that your property will sell quickly and for a higher price.
Additionally, it’s critical to do market research, understand your property’s value, and be aware of local competition. It will assist you in accurately pricing your property and improve its appeal to potential buyers.
If the sale of your old property doesn’t go through and you have taken out a bridging loan, it can be difficult and stressful.
However, preparing for this possibility is essential before taking on the loan. One way to do this is to check with your lender about the “exit clauses” in place if the sale of your old property falls through. These clauses will outline what steps you need to take and any penalties associated with the loan.
It is also essential to consider other exit options, such as refinancing, getting a second mortgage, or finding a new buyer for the property. Ensure you have a plan in place before taking on a bridging loan.
How To Use A Bridging Loan To Lower Your LTV Ratio
A bridging loan can lower your LTV (loan-to-value) ratio by providing additional cash to make a larger down payment on a new property.
A lower LTV ratio means that you will have to borrow less money and will also qualify for a lower interest rate. It can benefit you in the long run, as you will pay less in interest over the life of the loan.
How To Apply For A Bridging Loan
To apply for a bridging loan in Singapore, you will need to provide the following documents:
- A copy of your NRIC (National Registration Identity Card)
- Proof of income, such as your latest payslips or income tax returns
- A copy of the sales and purchase agreement for your existing property
- A copy of the sales and purchase agreement for the new property you wish to purchase
- A copy of the title deeds for both properties
- A letter from a registered real estate agent confirming that your existing property is on the market for sale
Once you have gathered all the necessary documents, you can approach a bank or a licensed money lender for a bridging loan. They will assess your application and may require additional documentation or information before deciding.
Bridging Your Way To A New Property
A housing loan calculator in Singapore helps individuals determine how much they can borrow for a home loan and estimate their monthly repayments.
These calculators typically require users to input information such as the loan amount, interest rate, and loan tenure. Once this information is entered, the calculator will estimate the monthly repayment amount and the total interest and principal paid over the loan.
It’s also crucial for borrowers to consider their income, expenses, and long-term financial goals before applying for a housing loan. It’s always best to consult a financial advisor or a banker before making significant financial decisions.
At Lending Bee, we help you understand the options available and prepare you to make an informed decision about whether a bridging loan is a suitable choice for you.
Frequently Asked Questions
Can I Use A Bridging Loan To Purchase An HDB Flat?
You can use a bridging loan to purchase an HDB flat in Singapore. However, you will need to meet the eligibility criteria set by the HDB and provide the necessary documents.
What Exactly Is A HDB Bridging Loan?
Any bridging loan you have previously used will function similarly to a HDB loan. HDB bridging loans enable you to pay the down payment and other expenses for your new property before selling your old one.
How Long Does It Take To Get A Bridging Loan In Singapore?
The time it takes to get a bridging loan in Singapore varies depending on the lender and your creditworthiness. On average, it can take anywhere from a few days to a few weeks.
Are There Any Penalties For Early Repayment Of A Bridging Loan In Singapore?
Some lenders may charge a penalty for early repayment of a bridging loan. However, checking with the lender beforehand is best to confirm their policy.
About Ashley Sim
Calling herself a “professional multi-tasker”, Ashley worked as a relationship manager in a bank for five years. She left her job just before the pandemic happened and became a freelance writer for about a year. Now, she’s making the most of her love for writing and knowledge of the banking and financial industry in her role as a content marketing lead. She hopes to help people make better financial decisions through her content and campaigns.