Yes, absolutely. Here’s a scenario to consider. You have lived in a particular property for a specific duration, and now you are upgrading or downgrading for a new property.
While you sell your former property and buy a new one, you may require some financial support.
This is where a bridging loan is applicable. Bridging loans in Singapore bridge the gap as a homeowner sells and buys property simultaneously.
It helps you acquire the required capital, making your downpayment and other trivial expenses possible.
This guide will give you a detailed account of bridging loans in Singapore.
Expect to learn how to apply for bridging loans at banks or with licensed money lenders. Also, understand every little specificity about a bridging loan in Singapore.
What Is A Bridging Loan?
In Singapore, a bridging loan is the amount of money you can get from banks to buy your new property.
As mentioned, a bridging loan helps you sustain your plans for a new property as you await the remittance of your former.
Let’s consider a second scenario. You are buying a private property while you sell your HDB flat.
Remember, government properties delay their sale proceedings. As you try to purchase private housing for yourself, you can get 25% of your sellable property valuation from the bank. This amount is a bridging loan.
Concerning the second scenario, you can spend that 25% to make a downpayment at your new property. It’s a short-term loan scheme that provides you with monetary aid.
Then, what is a HDB bridging loan?
Simply put, it’s similar to bridging loans of any kind. The Housing and Development Board (HDB) is a statutory government board of Singapore. It offers properties to eligible citizens at reasonable prices.
If you are an eligible candidate and wish to move to one such government-subsidised property, an HDB bridging loan is essential.
The loan ensures you do not miss the opportunity and still have the financial capacity to relocate.
Adding to that, the loan allows you to begin repaying right after your former property is sold. You can borrow for up to six months, and this scheme includes both private and subsidised properties.
Another question that loan seekers often ask is about temporary bridging loans.
It is not to be mistaken with the bridging loan.
A Temporary Bridging Loan is another government initiative in response to the Covid outbreak that takes care of small and medium-sized enterprises’ immediate cash crunch.
The receiving party has to return 100% of the loan amount within five years, with a fixed interest rate of 5.5% per annum.
What Should You Know Before Applying For A Bridging Loan
Every benefit that comes with loans has its demerits too.
Before choosing a loan scheme in Singapore, you must consider the following factors.
1. Loan Principle: You must pay attention to the loan principal, which is only 25% of your new property cost price.
It will suffice only for the downpayment and a quarter of the purchase price. Do not expect bridging loans to cover your home loan.
2. Rate of Interest: Bridging loans are short-term financial schemes that charge you a high interest rate. It asks for 5-6% interest per annum, while a personal loan seeks 2.15% interest annually.
In comparison, bridging loans may not be the right choice for a long-term monetary venture.
3. Repayments Per Month: A bridging loan allows you to repay your debts every month. It enables you to pay the downpayment for your desired property.
4. Loan Duration: Generally, you get a tenure of six months to pay back your loan. You must carefully note the interest and the duration by which you are to repay.
Any oversight on your part can land you in huge debt. On the other hand, money lenders may give you a month or so until your property is sold.
5. Total Expense: Remember that bridging loans can only support you with a portion of the entire cost. The rest of your expenditure includes:
- Processing fees
- Administrative fees
- Interest payments
- Late fees
Money lenders do not ask for any upfront money but a late payment amount of $650 and 10% of the total loan amount as a processing fee.
If you have given due consideration to these factors, the following guidelines will help you to decide your next steps.
How To Apply For A Bridging Loan
In Singapore, almost every bank offers bridging loans. Banks’ requirements vary from one other.
Before you choose a bank, ensure to consider their criteria carefully.
However, individual or organisational money lenders also offer bridging loans, and are generally more flexible and lenient with their conditions than banks.
In terms of eligibility, the borrower must:
- Be a citizen of Singapore, a permanent resident, or foreigner living in Singapore
- Be at least 21 years old
- Have a property to sell
- Have the required documents of their sellable property
How To Proceed With Bridging Loans At The Bank
Banks generally ask for your Option To Purchase document (OTP), Central Provident Fund (CPF) statement, and your latest bank statement.
Remember to keep them handy when approaching your respective bank.
Here are the steps to follow when getting a bridging loan from a bank:
Step 1: Register at your preferred bank.
Step 2: Contact the specified representative and thoroughly discuss the bridging loan.
Step 3: If satisfied, log into the bank’s online loan facilities.
Step 4: Take note of the required proofs and documents.
Step 5: Submit them on the respective portal.
Step 6: Wait for the result to be declared.
How To Apply For Bridging Loans From Money Lenders
In Singapore, money lenders specifically lend money to borrowers who do not meet the criteria to borrow from banks.
Also, their relatively relaxed conditions fetch them more customers.
It’s always preferable to opt for licensed money lenders. The government has restricted them from charging interests more than a certain amount and limited them from lending excessive money.
You are advised to check the this list of licensed money lenders before opting for any such loan options in Singapore.
If you’re looking for a bridging loan from a reliable and licensed money lender, CreditMaster is a good choice.
Follow these steps to contact money lenders for bridging loans:
Step 1: Call your preferred money lender or visit its website.
Step 2: Answer their questions or fill in the form.
Step 3: Take note of the required documents.
Step 4: Submit them on the provided website.
Step 5: Wait for a confirmation of your finances from the respective branch.
Here are some documents that most money lenders will need from borrowers:
- NRIC
- Borrower’s income and employment document
- Documents of borrower’s residence
- Opportunity To Purchase (OTP) document
- Singpass (digital identity certificate) of the borrower to access HDB and CPF websites
How To Use A Bridging Loan To Lower Your LTV Ratio
The Loan-to-Value (LTV) ratio is the amount you can borrow from the bank to purchase the property.
The bridging loan helps to reduce this ratio when your credit score is not optimal. In this way, you can guarantee the seller of your cash payment.
For example, consider having a bridging loan principal of $750,000 – a 75% LTV over a net property valuation of $1,000,000.
To reduce the LTV ratio (so that you owe less), you can increase the bridging loan principal to $500,000 from $200,000.
Thus, you need only ask for a home loan of $450,000, or 45% LTV.
You can repay your loan after you get the net sale proceeds of your former property.
How Much Can You Borrow Using A Bridging Loan?
We discussed that bridging loans can be procured from two sources: the bank or a money lender.
The amount offered differs between banks. But borrowers can get enough to clear the non-cash downpayment for the new property.
While most borrowers obtain six times their monthly salary, some secure the net proceeds from their former property. In that case, the borrower can use the bridging loan for a portion of the home loan.
As for licensed money lenders, they can lend you anything from $5,000 to $200,000.
Can You Use CPF To Cover Your Bridging Loan?
Yes, you can use your CPF to cover your bridging loan.
After you have sold your former property, you have to repay the funds. But the rate of interest calculated for the fund must be paid in cash.
What To Know About A Bridging Plan
A bridging loan is a beneficial short-term financial strategy for loan seekers.
Yet, it has its pros and cons. You, the borrower, must wisely judge your capabilities before opting for one.
Pros:
- It is convenient for borrowers who cannot wait to relocate to a new property. Settle the downpayment first and then repay the loan and the interest with the sale proceeds of your old property.
- You can repay the principal first and the interest later, with the help of bridging loan money lenders.
- You can swiftly obtain quality loans that will help you avoid renting a home. Get your new property first, and then repay your loan.
Cons:
- Do not expect your property to sell according to your planned estimation. Often, the value is less than you have planned. This means you have to pay more interest on your bridging loan.
- While planning for bridging loans, remember it deals with two properties. Hence, two property valuations, two loan charges, and two interest rates are calculated.
- The longer it takes for your former property to sell, the more interest you have to pay.
- If you consider changing your bridging loan to a mortgage loan before the bridging loan period ends, expect to pay a termination fee.
Alternatives To Bridging Loans
Bridging loans are not the only option for a quick and easy loan. There are other options for you to consider. These include:
This monetary scheme works the same as bridging loans. The Singapore government lends financial support to borrowers who are ready to settle in their new homes. They do not have to pay long-term mortgage loans.
This is on the condition that the borrower:
- Must have a new flat ready to settle in
- Must have applied and received a home loan from a reputed institution
- Has agreed to sell the existing property
- Has sufficient CPF to receive the loan fund
Another way to resolve your cash-crunch issue is by getting a personal loan.
Both banks and money lenders offer personal loans. If you meet the criteria, banks can disburse almost six months of your salary.
Depending on a money lender, you may receive up to six months of your salary. But the money lenders will give you only 12 months to repay the amount.
Conclusion
Singapore has quite a high cost of living.
In fact, statistics show that it is only 18% less than New York without rent. With every passing day, maintaining a comfortable lifestyle in Singapore is getting costlier.
As such, relocating to a spacious property of your choice may demand you to liquidate your assets and deplete your savings.
It may not be the case for everyone. In times of need, a bridging loan in Singapore can close the gap financially between selling and buying a new property.
It’s a six-month short-term loan, which is an appropriate scheme for a quick cash injection. All the same, you must be wary of its cons.
Remember: Bridging loans come with a high rate of interest and short loan tenure.
Contact CreditMaster, a reputable licensed lender, to review your options, or apply for a loan with us now.
