Imagine you want to purchase a property but are yet to sell your current home. There are countless loan options, but not all are effective or reliable. Most Singaporean homeowners give up along the way and fail to achieve their goals.
You may also be buying a property and are waiting for the sale of an existing one to complete. The best Singapore bridging loan can prove useful in both circumstances.
Getting a bridging loan is a wise move. It helps make buying a new home easier as you sell another. It also provides funding for the down payments and deposit of your new space so that you can secure it.
What is a Bridging Loan?
Also referred to by some as ‘gap financing’ or ‘swing loan,’ a bridging loan is a short-term financing option. It is considered a welcome lifeline that homeowners use to bridge the gap between purchasing a new property and selling their current house.
It’s secured by your current space as collateral, like HELOCs, mortgages, and home equity loans.
You’ll learn as you use bridging loans that they vary widely depending on the bank’s conditions, terms, and charges. However, most of them share similarities, such as:
- Lenders extend them only if the borrower agrees to finance the new crib’s mortgage with the same establishment.
- Rates can vary anywhere from the prime rate to the prime rate with an extra 2 percent.
- They normally run from half a year to a year.
Their maximum amount is limited by the CPF balances and net proceeds from the accepted sale of your former property. Their maximum tenure is six months while bridging loan interest rates generally fall between five and six percent p.a depending on the financing institution.
There are two types of bridging loans: Simultaneous repayment bridging loan and capitalised interest bridging loan.
A capitalised interest loan covers the whole amount of the new space you plan to buy. Meanwhile, a simultaneous repayment bridging loan allows you to pay the bridging loan and loan for your new home together.
Should you use a capitalised interest or a simultaneous loan? It depends on your situation. Simultaneous payment bridging loans usually have a fixed property sales deadline.
How Does a Bridging Loan Work?
Assuming you receive a bridge loan for S$82,908, with your current home value being S$124,362 and a S$55,272 balance remaining on your mortgage. S$55,272 of that S$82,908 would go to the mortgage.
An extra S$2,764 would go to closing charges. You’d now have S$24,872 for your next purchase, thanks to some of the best Singapore bridging loans if all goes as planned.
You may pay at least 1.5 percent to 3 percent of the loan quantity in closing charges for a bridge loan. Bridge loan rates can go as high as 8% to 10%, depending on your credit profile and loan amount.
5 Best Bridging Loans In Singapore
It’s usually a requirement that you get bridging loans in Singapore from the same bank providing you with a home loan. That’s why it helps to thoroughly research the different types of bridging loans and learn your entire property value before settling on any bank for the loan.
We understand how frustrating choosing the capitalised interest vs. simultaneous repayment bridging loan you want can be, especially if you’re new to it. That’s why we’ve made things easier by providing some of the best in Singapore 2022 below:
|Standard Chartered’s HDB Bridging Loan||Maybank HDB Home Loan||DBS Bridging Loan||UOB HDB Loan||OCBC Home Loan|
|3M SIBOR + 2.00% p.a.||1.4% to 1.6%||Prime rate||4% to 5%||
|6 months||At least 6 months||Up to 6 months||At least 6 months||Up to 6 months|
|Property type||HDB||HDB||All property types||HDB||
Bridging loans are ideal for you if you seek a quick way to get a loan for purchasing a new property.
You can borrow at least 25 percent of the purchase price of your new flat with a bridge loan.
Perhaps you’re thinking twice about getting a capitalised interest or simultaneous payment bridging loan from a bank. Don’t worry. We’ve got you sorted.
Alternative: Getting a Bridge Loan from a Licensed Moneylender
Many homeowners in Singapore prefer receiving bridge loans from banks licensed moneylenders as a bridging loan option aside from banks for various reasons. One of them is that loans from moneylenders are unsecured.
Next, the loans from Singapore’s licensed moneylending industry are short-term, meaning you must pay them off within half a year or a year. Lastly, when borrowing a bridge loan from a reputable moneylender, you don’t need a credit score.
An additional perk is the 4% interest rate cap mandated by the Ministry of Law in Singapore. The Ministry of Law put this cap in place to protect you when you turn to a moneylender.
All the above advantages make licensed moneylenders a perfect substitute for bank bridging loan financing.
Factors to Consider When Getting a Bridging Loan
There are a number of aspects you should bear in mind before using bridging loans as substitutes:
- Monthly repayments: you should tell yourself, ‘I must pay my bridging loans on time’. Failure to do so will result in an accumulation of the amount, making it difficult to repay in the long run.
- Loan quantity: a small amount won’t help you achieve your property-purchase objective. On the other hand, a large amount may be challenging to repay, with you having to pay more than what you owe.
- Loan tenure: please settle for a home buying bridging loan with a reasonable payment term. It helps to pay your bridging loan as quickly as possible so you can escape the discomfort that comes with debt.
- Interest rate: ensure that the bridge loan you’re going for has low-interest rates.
The biggest risk of using bridge loans as substitutes for personal loans is your assets’ safety. As with other kinds of secured finance, you’re likely to lose your property and other assets if you don’t pay back your bridging loan on time. Personal loans can work as a bridging loan substitute in some cases.
How to Apply
Here are the eligibility and documents required to apply for a bridging loan in banks and from licensed moneylenders:
- You need to be a Singaporean citizen, a foreigner in the country, or a Permanent Resident in the process of selling your assets in Singapore.
You’ll need to provide:
- Outstanding bank loan statements
- CPF withdrawal statements, and
- the Option To Purchase (OTP) document. This document proves you have the green light to buy the property. Home loans apply online for a seamless experience.
- At least 18 years old
- Singapore citizens, Permanent Residents, or foreigners living in Singapore.
- You should have exercised the Option To Purchase (OTP)
You’ll need to provide:
- A copy of the OTP document
- An ID card or NRIC
- Proof of employment (recent three months payslip or a certificate of work)
- SingPass (to log into IRAS, CPF, and HDB website)
- Proof of residence (tenancy agreement, a letter addressed to you, utility bill)
Other Things You Need to Know
1. Does HDB Offer Bridging Loan?
No, HDB doesn’t offer a bridging loan. Rather, It offers a second HDB loan with conditions. The loans enable you to pay initial costs and your prospective property’s down payment before you sell your former hdb flat.
2. Do Banks do Bridging Loans Anymore?
Not all banks. Only several, including OCBC, Standard Chartered, UOB, Maybank, and DBS. Most of those that offer home loans offer bridge loans as well. You should compare all Singapore bridging loans closely before property transactions and decide to get a bridging loan from a specific financial institution.
3. Can I Use CPF to Pay a Bridging Loan?
Absolutely. You can use it as soon as the sale of your former property is completed and your Central Provident Fund (CPF) is refunded. The only catch is you have to service interest with cash. You also have to ensure you replenish your provident fund CPF savings.
Should I Apply for a Bridging Loan?
Granted, a standard bridging loan may have risks, but no good thing lacks a few cons. Apply for a bridging loan today so you can purchase a new property with ease.
Bridging loans, specifically the capitalised interest bridging loans, pay for the whole property value. You’ll begin making repayments once your sale of the former property is complete. It’s also important to note that interest rates accumulate depending on the loan tenure in this bridging loan.
- A bridging loan focuses on helping you purchase a property even when you’re yet to sell your property. It’s also an awesome choice aside from banks and licensed moneylenders.
- A simultaneous repayment bridge loan is an alternative bridging loan option that allows you to pay the loan for your new home and bridging loan simultaneously.
- You need to research before choosing to use bridging loans and know your property’s net sales proceeds.
- Proper property valuation is vital before borrowing a bridging loan.
Need a bridging loan but don’t have the time, energy, and patience to check hundreds of moneylenders in Singapore? Instant Loan can help. It has a quality algorithm that allows you to save time locating the most suitable licensed moneylender for your needs. Contact us today, and get three loan quotes from us, free of charge!