hdb bridging loan

Buying a Home With an HDB Bridging Loan? Here’s How

An HDB bridging loan allows you to clear the prospective space’s initial costs and down payment without having to wait for your current property’s sales proceeds. You can do it even if you haven’t sold your old property yet. 

The loan also helps you steer clear of numerous debts since it offers you sufficient cash for your next property purchase when you need it.

However, the loan has drawbacks, such as higher interest if your old property has a longer selling period. And you have to pay a bigger repayment charge if your crib sells for lower than what you planned. Therefore, you must take the time to know what you’re getting into before you apply for a bridging loan.

What is HDB Bridging Loan?

An HDB Bridging Loan is short-term loan that bridges the gap by letting you enjoy the benefit of a new property’s low down payment. You clear the price without having to wait for your net sales proceeds once you sell your current home.

Most financial institutions offer HDB loans depending on factors like your current income and age, how much your CPF savings are, and credit standing. This ensures you won’t have any challenges repaying the loan.

How Does HDB Bridging Loan Work?

The loan can take first place as the prime mortgage on your current property. It can also take the second position.

In the first instance, a moneylender will provide you with a loan to clear the balance of your mortgage and extra for down payment and other property transaction costs. The loan takes the first position until you sell your crib when you pay your current mortgage. You clear the loan when you sell your home.

The lender provides the loan in the amount you require for down payment on your new condo when the loan takes second place. Your current home secures it. Hence it becomes a second mortgage.

A bridging loan comes to the rescue when you want to sell your current HDB flat and want to skip the hassle of waiting for your sale proceeds. The proceeds usually come in CPF funds and cash and can take as long as five months to be in your possession.

You can usually borrow up to eighty percent of your home’s worth with the loan. You may take fixed monthly payments, interest-only monthly payments, or zero payments until you sell your home. It depends on the moneylender’s terms.

Types of Bridging Loan

You have two options when taking a bridging loan: it’s either the bank pay for your new property while waiting for the sales proceed of the old one, or you pay off both of the properties simultaneously. 

  • Simultaneous Bridging Loan– it’s an ideal choice if you’d like to sell your crib but haven’t found a buyer yet. The loan allows you to pay for your new condominium while you pay off the loan for your current space. Hence the ‘simultaneous.’
  • Capitalised Interest Bridging Loan– here, the lender will finance your new property up to eighty percent. You’ll only start repaying the mortgage with your property’s sales proceeds after it’s sold. It might work if you don’t want the hassle of paying several loans at once.

Note that these types of bridging loan don’t apply to licensed moneylenders. They can give you either up to one month or until the property’s completion date. 

 

Advantages and Risks

A bridging loan may be reliable and convenient but has advantages and disadvantages. More on this below:

Advantages

  • Low-interest rate- Banks usually offer a 5-6% interest monthly rate; 1-4% for moneylenders
  • You don’t have to rent- bridging loans allow you to afford a property fast and seamlessly.
  • It’s convenient- you don’t have to wait until you sell your former property to get money to pay for your new house. A bridging loan offers cash you can repay with your former space’s sale proceeds.
  • Flexible repayments- Most loan providers can give you time, until the property’s completion date

Disadvantages

  • Higher interest rates interest is generally charged monthly. The longer your space takes to sell, the higher the interest rates become.
  • Termination fees– switching from bridging loans to mortgages before the bridging loan term ending may attract some termination or early repayment charges.
  • Risk of not marketing for a high charge– you may leave a large continuous credit amount if your house’s cost is lower than what you had in mind.
  • Loan expenses– bridging loans require two interest rates, two property valuations, and two loan charges.
  • Your property is collateral– the lender can foreclose on the property used as collateral for the cash if you default on the credit.
  • It has LTV ratio limits– you’re limited to an 80 percent LTV ratio if you decide to take the bridging loan route. This means you should have over twenty percent equity in your current property to make sufficient money for your desired crib. Licensed moneylenders, meanwhile, can offer up to 6x your monthly salary. 

young couple becoming house owners

Factors to Consider

A bridging loan can be effective only if you know how to make the most out of it. Most Singaporean homeowners rush into applying for one without taking time to read the fine print. The results? Regret and a stressful loan with lots of interest to pay.

The following are some crucial aspects that you should consider carefully before applying for the property loan:

  • Interest rate– Banks’ interest rates usually range from 5 to 6% p.a. The amount can be higher if there are processing fees. Moneylenders on th other hand offers 1-4% per month.
  • Loan tenure– HDB bridging loans typically have a 6-month loan tenure. While moneylender can give you one month or until the property’s completion date
  • Monthly repayments– Can your current job provide the significant amount of money you need for the monthly repayment of the loan? Better yet, do you have enough savings to clear the bridging loan amount in case anything happens to your job? These are some of the vital questions you should answer before applying for the loan online.
  • The risk involved– can you handle the fact that the loan will use your property as collateral should you fail to clear the loan on time? Also, there’s a limited repayment period and a high-interest rate. You need to know your property value so you can get the right price for it.
  • Loan amount– it’s easy to get tempted to borrow a higher loan amount than what you need since, well, there’s enough cash available for your property purchasing needs. Most banks can lend you up to 25% of the purchase price of the new property, while licensed moneylenders can provide you up to six times your monthly salary. 

Getting Your Bridging Loan From a Bank

Most Singaporean homeowners choose to get their bridging loans from a bank. This is because the institutions offer bridging loans with lower rates. These rates will be pegged to a Fixed Deposit Home Rate, SIBOR, or SOR.

Moreover, bank loans offer delicious teaser rates for the first several months to attract potential clients, which works like a charm.

So, which banks offer bridging loans, and what are their rates? The comprehensive comparison table below has all the details:

OCBC Home Loan Maybank HDB Home Loan UOB HDB Home Loan Standard Chartered’s HDB Bridging Loan DBS Bridging Loan

Interest rate

1.55% p.a 1.4% to 1.6% 4% to 5% 3M SIBOR + 2.00% p.a

Prime rate

Tenure

Up to 6 months 1-4 years Up to 6 months Up to 6 months

Up to 6 months

Property type

Home HDB HDB HDB

All property types

 

HDB Bridging Loan Repayments Methods That Banks Accept

The most common loan repayment alternatives that most banks accept are capitalised interest bridging loan and simultaneous repayment bridging loan repayments.

The capitalised interest bridging affords you the luxury of avoiding paying two loans simultaneously. Meanwhile, the simultaneous bridging loan option lets you pay lower interest on your bridging credit. It lets you simultaneously clear your bridging loan and your new home’s loan.

How to Apply for Bridging Loan in Bank

The loan application process is pretty straightforward. You have to:

  • Register with a bank account
  • Get in touch with an agent concerning a bridging loan application
  • Access the institution’s online bridging loan facilities
  • Present the required documents and match the eligibility criteria
  • Submit the forms to your bank of choice’s submission medium
  • Kick back and wait for the outcome

The eligibility requirements and necessary documents are:

Eligibility

  • You must be a Singaporean citizen or a Permanent Resident or foreigner in the country aged 21 years and above.
  • You have proof of sellable property ownership
  • You should have an impressive credit score
  • You’re currently selling the condo or house

Requirements

  • CPF withdrawal statements
  • An OTP (Option To Purchase) document
  • Outstanding bank loan statements

woman walking towards house with a bridge

Getting Your Bridging Loan From a Licensed Moneylender

There are many reasons why you, as a Singaporean homeowner, should seek financing from a licensed moneylender rather than a bank. One of the main ones is you don’t need a credit score when borrowing from a moneylender.

Also, moneylenders adhere to the 4% interest rate cap introduced by the Ministry of Law in Singapore. The cap means that interest rates lower to 4 percent if you’re a borrower earning less than S$30,000 per year.

Lastly, bridging loans from moneylenders are unsecured, meaning the lender doesn’t rely on your property as security. Instead, they concentrate on how worthy you are to get the loan from your credit report. You’ll have to provide your signature if you meet their borrowing requirements.

How to Apply

  • Request quotes from a loan comparison site such as Instant Loan
  • Fill out the provided online form
  • Present the required documents to the moneylender’s accepted submission channel.
  • Sign the contract in the moneylender’s office and get your cash instantly on the same day!

Eligibility and Requirements

Eligibility

  • You must be a Singaporean citizen or a foreigner or Permanent Resident living in Singapore.
  • You must have exercised the Option To Purchase (OTP).
  • You must be over 18 years old.
  • You must be earning S$2,000 if you’re a foreigner or S$1,500 if you’re a Singaporean citizen.

Requirements

  • A copy of the OTP
  • A copy of an NRIC or ID card
  • Proof of employment and income
  • Proof of residence
  • SingPass to log in to HDB, IRAS and CPF websites

Alternative to Bridging Loan

There are several loan options apart from a bridging loan:

Personal Loan

Personal loans have a relatively similar eligibility criteria to bridging loans from licensed moneylenders and banks. However, the difference is personal loans issued by banks can offer you up to six months of your monthly salary or more. It depends on the lender. 

Ensure that you know your new property’s purchase price and compare various personal loans before settling for a specific choice for the best deal.

HELOC

This convenient alternative allows Singaporean homeowners to borrow cash from the equity they have in their homes. There are several boxes you have to check if this option tickles your fancy:

  • You must have good credit
  • You must have a debt-to-income ratio of 43 or less
  • You must have sufficient income
  • You must have at least 15-20 percent equity in your home.

Find out more won what’s the differences between bridging loan and HELOC.

Is it The Right Time for Your HDB Loan?

It’s the right time to apply for bridging loans if you find yourself in several situations. Some of these instances are:

  • You’re looking to refurbish a property.
  • You need financing minus monthly interest payments for a short duration.
  • You’d like to move quickly, but you’re struggling to sell your private properties. And, you need financing for your new property’s purchase.
  • You’d like to buy an auction property.
  • You’re hoping to buy new land to build your house on it.

It isn’t the right time if:

  • You’re struggling with debts.
  • You don’t have a job.
  • You have insufficient CPF savings.
  • You don’t fully understand how an HDB loan works and how it can help you.
  • You haven’t decided which flat or private property you’d like to purchase.

Final Word

A bridging loan is a convenient source of quick cash for financing a new property’s purchase. The secret is making monthly loan repayments consistently to avoid late loan repayment. 

Key Takeaways

  • A bridging loan allows you to clear your new property’s down payment and initial cost even if you haven’t sold your existing HDB flat yet.
  • A bridging loan can take either the first or second position as the primary mortgage of your private property.
  • Getting a bridging loan from a licensed moneylender is easier and faster than banks.

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!

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