If you’re in the middle of purchasing a new property and selling your existing one, you’ll probably need a bridging loan to help bridge the time and financial gap.
During this period, you’ll need to somehow finance your housing costs, such as making the downpayment on the new property as you wait for the sale proceeds from the existing one.
In Singapore, a bridging loan is used by individuals planning to sell their existing flats for a downgrade or an upgrade.
A bridging loan can be a great method to offset these costs, but it’s crucial to understand how they work before applying.
This guide will inform you everything you need to know about a bridging loan and answer the important question; “How much is a bridging loan in Singapore?”
Let’s dive in.
A bridging loan is a short-term answer for individuals looking for extra funds to purchase a new property before selling the existing or old one.
In a nutshell, a bridging loan allows people to move into their new homes before they finalize the sale of their old property. You can use this loan to make a downpayment on the new property or make other household costs.
For instance, if you’re upgrading your property and have already signed the sales and purchase agreement, you’ll need to deposit the downpayment. Suppose you don’t have the funds to do this, or you’re yet to receive the funds from the sale of the old property.
In that case, you’ll need a bridging gap from a bank or a qualified money lender in Singapore to bridge the gap.
Before borrowing a bridging loan, it’s important to understand several things.
Banks and other licensed financial institutions usually use your property as collateral for loan repayment. So, ensure you can repay the loan on time to avoid losing your hard-earned investment.
A common most Singaporean homeowners make is overestimating the amount they can sell their properties for.
Ensure you know the precise value of your existing home before applying for a bridging loan. This helps eliminate any future surprises if you miscalculate your property value. Stay ahead of the state of the current and projected real estate market.
It’s important to have all the details of a bridging loan before applying. Understand the processing fees and other costs you will likely incur when borrowing a bridging loan.
Ensure you compare the processing fees, interest rates, and other costs that various banks and financial institutions offer and select the best.
Always ask about the lone tenure before applying to ensure that you have ample time to complete the sale of your old property.
Always ensure the monthly repayments are within your means. If your sale proceeds are delayed, you can accommodate the monthly payments.
There are two types of temporary bridging loans in Singapore. Capitalised Interest is the first bridging loan type covering the entire new property you want.
With a capitalised interest loan, your repayments will only start after selling your old property. This implies that you won’t have to pay for two loans simultaneously.
On the other hand, a simultaneous repayment loan, as the name suggests, works the opposite. You’ll have to simultaneously repay the home and bridging loans, which can be overwhelming. Although the two types are different and exist in theory, you don’t have to worry about them in practice. This is because in Singapore, you must repay the bridging loan within six months.
The net proceeds and the CPF balance from the approved sale of the previous property usually limit the maximum amount for your bridging loan in Singapore.
The maximum tenure is set at a mandatory period of six months, while the interest rates vary from bank to bank. However, the interest rates range from 5-6% per annum, with some charging over 7%.
The most common scenario in practice with bridging loans is that they have a maximum amount of 20% of the home value.
However, as long as the sales proceeds from the old property can cover it, you can get the limit approved. Besides, you can use it to get a lower loan-to-value (LTV) ratio.
It’s important to note that bridging loans aren’t secured by the existing property but by the second home, giving them their name; “bridging” loans.
You can also use a simple housing loan calculator in Singapore for the precise amount in your area.
A loan-to-value ratio is an amount determined by the Monetary Authority of Singapore that borrowers are allowed to borrow to finance the purchase of a property or home.
In other words, LTV is the lending risk that banks and other lenders consider before approving a loan. Usually, banks have an LTV of 75%, while HDB has 80%.
HDB bridging loans are available to potential homeowners to avoid renting, purchasing and selling their previous property to pay for their bridging loan.
So how can a bridging loan lower your LTV ratio? A bridging loan adds equity to your home as you wait to sell the previous one. This implies that you have less equity in the home, consequently lowering its value in the eyes of the lenders.
For instance, if you have less than 20% equity on a property, then your LTV ratio will be higher than it’d be if you had over 20% equity in the home.
A standard bridging loan has an LTV, or between 80-90%,meanings that the value of your home is lowered by 10-20% if you were to sell it instantly after receiving a bridging loan.
Having determined that a bridging loan is ideal for your current situation, let’s learn how you can apply.
Most banks in Singapore offer bridging loans, and you can conduct a quick Google search for “bridging loans near me.” Besides, you can visit the bank where you’ve borrowed and saved funds. You can also apply online via the lender’s website or application.
The terms and conditions vary from lender to lender. Still, private residents or Singaporeans should hold at least 30% of the shares with most financial institutions.
You should also be registered and physically present in the country for at least six months. The basic steps to follow when applying for a bridging loan include the following:
The common eligibility requirements to meet include:
The common supporting documents include:
For licensed money lenders, the criterion is a bit different, especially in terms of eligibility.
For the residency, Singaporeans or private residents should be above 18 years old and earn $1,500 monthly, and $2,000 for foreigners.
The supporting documents include your NRIC, proof of employment and income, proof of residence, IRAS, HDB, CPF Singpass, and a copy of the OTP.
There are a few alternatives if you don’t want to go for a bridging loan in Singapore. You can opt for a personal loan or a temporary loan scheme.
Banks and licensed money lenders provide Singaporeans and foreigners with personal loans. Personal loans from banks can be up to six months of your monthly salary or even more, depending on the lender.
A personal loan is perfect for borrowers who don’t qualify for bridging loans. Besides, the eligibility for personal bank loans is similar to bridging loans.
The Singapore government provides a temporary loan scheme to provide financial aid to the citizens. Singaporeans can acquire a flat without paying the common long-term mortgage loan, which works like a standard bridging loan. To qualify for the scheme, you must:
Bridging loans allow you to move into your new home before you finalise the sale of your old property.
You can use this loan to make a downpayment on the new property or make other household costs. If you’re unsure of how to go about it or need more information about home loans, CreditMaster is your one-stop shop.
Bridging loans usually cover the remaining amount beyond the LTV you’re applying for.
This implies that you can borrow up to 25% of the new property’s buying price as long as you get enough from the sales proceeds of the old home.
The risktolerance depends from bank to bank. However, applicants with poor credit history or ratings will usually be denied.
Unlike the usual home loans, bridging loans have higher interest rates of 5-6% per annum, depending on the bank.