In Singapore, your journey to getting your own home typically begins with an HDB flat. Yet, eventually, you will want to move into a better and bigger space and due to growing family needs. So when you find that ideal property, you need to make a substantial financial decision. And this is when a bridging loan may come in handy.
Bridging loans help facilitate the down payment costs while waiting for the sales proceeds of your old property. Typically, you may borrow up to fifteen percent of the purchase price of the new property. These loans often come with five to six percent interest rates per annum.
You may get a bridging loan from the government, large banks, and licensed moneylenders. Check out our guide and find the best options and Singapore’s latest bridging loan interest rates.
What is a Bridging Loan and How Does it Work?
Bridging loans are short-term loans that are secured against your property. Commonly, these loans are used to bridge the gap between paying the downpayment of your new home to receiving the sales proceeds of your current home.
Various financial institutions and major banks offer bridging loans in Singapore. The loan amount will significantly depend on your ability to pay and the property value.
Here’s a real-estate scenario where the significance of a bridging loan is illustrated:
- You are waiting for the sales proceeds of your current home at S$250,000.
- The new property you want to buy is priced at S$500,000.
- You need to pay a cash downpayment of S$100,000.
- As your cash on hand is only S$25,000, you still need S$75,000 to complete the downpayment costs.
- You apply for a bridging loan to complete the downpayment costs.
- Once you receive the sales proceeds of your current home, you immediately pay for the bridging loan.
Type of Bridging Loans
There are two main types of temporary bridging loans in Singapore – Capitalised Interest bridging loan and Simultaneous Repayment bridging loan. These types are only available from banks and not from moneylenders.
Capitalised Interest Bridging Loan
For the capitalised interest bridging loan, the repayment will only commence once the property has been sold. Initially, the lender will pay for the entire purchase of the new property. Interest will accrue throughout the loan tenure and is paid together with the balance.
For this type, you will have to make simultaneous payments on the bridging and the new home loan. Herein, you have twelve months to complete the sale of your existing property before the loan repayment starts.
1. When Does a Bridging Loan Make Sense?
Bridging loans are not only useful for cases such as paying for costs on your next property purchase. It also makes sense when used for:
2. Developing a Property
Bridging loans are popular with investors and landlords who want to improve their properties. After such, the property owner can rent it out or sell it at a much higher value.
3. Property Purchase at Auctions
Bridging finance can also be used when buying properties at auctions. Bridging loans are ideal because deadlines are tighter and stricter in this market.
4. Preventing Property from Foreclosure
Bridging loans are also crucial when paying off loans that will help prevent a property from being foreclosed or repossessed. With this, the owner will regain control of the property and sell it on their terms and price.
5. Buying a Bargain Property
A bridging loan can be a lifesaver when you find a bargain property and want to make a quick move and reserve the property. You can earn huge profits when you decide to resell this property at a much higher price.
Factors to Consider When Getting a Bridging Loan
Bridging loans are a complex financial tool and can be risky when it is not used correctly. When getting a bridging loan, make sure that you’ve considered all the risks and benefits.
What are the Benefits?
1. You receive the money quickly.
Home bridging loans are approved quicker than other loan types. With licensed moneylenders, loan applications are approved within the same day, making them ideal for time-sensitive transactions. Loan proceeds are also credited to your accounts instantly once approved.
2. You can borrow a significant amount.
Depending on the lender, you can borrow up to 15% of the purchase price or up to 75% of the loan-to-value price. Licensed moneylenders can lend up to six times your monthly income.
3. Most bridging loans have flexible terms.
Some bridging loans will allow you to pay only interest during a specific period. Some banks could also allow you to pay all your balances after completing the sale. On the other hand, a licensed moneylender allows you to pay within a month or until the property’s completion date.
What are the Risks?
1. Losing your property
Bridging loans from banks are secured loans; you could lose your property once you fail to repay your monthly dues. To avoid this, always repay your monthly repayments diligently and consistently. A licensed moneylenders is a less risky option and offers unsecured bridging loans.
2. It can be an expensive way of borrowing money
The average interest rates are currently between 5 to 6% and may even go up to eleven percent for some lenders.
Licensed moneylenders offer interest rates of only 1 to 4% monthly. Be wary of unauthorized lenders who offer quick access to cash but charge high interests and hidden fees.
3. Bridging loans may come with a lot of fees.
Aside from interest, bridging loans may also come with other fees. Make sure to read the terms and conditions and understand the costs involved.
Some of these include:
- Processing fees
- Exit fees
- Admin fees
- Legal fees
- Valuation fees
- Broker fees
With a licensed moneylender, you’ll only pay a one-time processing fee not exceeding 10% of the principal loan. While, for late payments, a maximum of S$60 per month.
Other Essential Factors to Consider
We’ve listed above some of the risks and benefits that come with bridging loans. But, there are more factors to consider before hurrying into one.
The amount you can borrow depends on your property’s worth and creditworthiness which depends on factors like the debt-to-income ratio and credit history. It will also depend on whether you have existing mortgages on the property. Avoid over-borrowing and stick to an amount or a monthly repayment you can commit.
Interest rates on bridging loans can either be fixed or variable. The monthly repayments and interest rates remain the same throughout the loan term with a fixed rate. But with a variable rate, the lender may set an interest rate depending on the current allowed rates in Singapore.
Typically, bridging loans should be repaid within a short period of one to six months. Some lenders, though, may offer longer repayment terms. Choose one that will fit your current property transaction needs or situation.
Before getting a bridging loan, you should also decide how long you will need to borrow the funds. Bridging loans are usually available for a short tenure of up to six months. You can also pay it off earlier, as its primary purpose is to tide you over to a time when funds become available. The longer it will take to repay the loan, the more it will cost you.
Best Bridging Loans in Singapore 2022
Bridging loan applications can be quickly made online through the lender’s website. You may also check their websites for current offers and promos.
Bridging Loan Interest Rates from Major Banks in Singapore
|Bridging Loan||Type of Property||Maximum Loan Quantum||Interest Rate||Loan Tenure|
|DBS Bridging Loan||All property types||Up to 75% of LTV||Prime Rate of 4.25%||Up to six months|
|Standard Chartered’s Bridging Loan||HDB only||Up to 75% of LTV||3-months SIBOR plus 2% p.a.||Up to six months|
|Maybank HDB Home Loan||HDB only||Up to 75% of LTV||1.33% to 1.60% for the first two years||Two to five years|
|UOB HDB Loan||HDB only||Up to 75% of LTV||4% to 5%||Up to 6 months|
|OCBC Home Loan||HDB only||Up to 75% of LTV||2.60% fixed for one year||1 to 3 years|
The best fit for your bridge loan will depend on a homebuyer’s individual needs. Choose a bridge loan package with a loan tenure that you can commit. Borrowers who need a longer time to sell their property should go for Maybank’s HDB home loan or OCBC’s home loan.
Otherwise, a borrower may choose the other bridging loan options and one with a rate or amount that they best prefer.
Licensed moneylenders are also a great alternative, especially if you don’t have good credit scores. It is also an excellent way to improve your credit score and get better loan offers in the future.
How to Apply
Bridging loan eligibility varies between banks and other lenders.
- Singapore Citizens/Permanent Residents who are in the process of selling their current home
- Good credit score
- Option to Purchase (OTP)
- Outstanding loan balances
- CPF statements
For Licensed Moneylenders
Licensed moneylenders are an ideal alternative option where you can get attractive bridging loan packages.
- The borrower must be at least 21 years old
- Must exercise the Option to Purchase (OTP)
- Minimum monthly income of:
- S$2,000 (for Singapore Citizens and Permanent Residents
- Singpass (to log in to CPF, IRAS, and HDB websites)
- Proof of Income/Employment(COE or recent 3-months payslips)
- Proof of Residence (utility bills or mailed letters addressed to the borrower)
- Copy of exercised OTP
Bridging Loan Alternatives
Not everyone will qualify for a bridging loan, especially those with poor credit scores. Yet, there are other cheaper alternatives to bridging loans that you may consider when buying a second property.
1. Second-Home Mortgages
A second-home mortgage allows you to take a loan against your property’s equity. Most lenders allow this loan only for buying another residential property for personal use, such as a closer accommodation to work or to be used by family members.
HELOCs can be used the same way as a bridging loan. However, it works similarly to your credit card and allows you ongoing access to quick cash. Some of its advantages include:
- Drawing credit any time the need arises
- Interest rates will depend on the amount you borrowed
- During the draw period, you are allowed to pay only the interest
3. Home Equity Loans
Like other secured home loans, you can borrow from a home equity loan using your home as collateral. These loans are long-term in nature, and you can pay them for up to more than twenty years. Thus, making it a less risky loan with interest rates that are also more favorable.
4. Personal Loans
A personal loan from banks could be an excellent option for borrowers with good credit history. With banks, you may get a flexible repayment period of up to five years and up to ten times your salary.
Those with adverse credit scores may opt for personal loans from moneylenders. With licensed moneylenders, you may get up to six months of your salary with a low-interest rate of 1-4% monthly. You can pay this loan for up to twelve months.
Bridging Loans from Licensed Moneylenders
If you have a less-than-perfect credit score, you may opt to try getting a bridging loan from a moneylender. Licensed moneylenders offer up to six times your monthly salary at low rates between 1-4% monthly. You can even pay up to the property’s completion date.
Other Bridging Loan FAQs
1. How do you repay a bridging loan?
You can pay your bridging loan either through cash or your CPF monies. Your CPF savings will be refunded once you have sold your old home. You can use it to pay for your bridging loan balance. Interests and other charges are payable only with cash.
2. Does HDB offer a bridging loan?
HDB does not offer bridging loans at the moment. However, it offers second mortgages for second-time HDB buyers. You can also get concessionary rates with this loan if you use your cash proceeds to pay for your loan.
3. How are monthly repayments computed?
Bridging loans are computed by multiplying the loan amount by the interest rate. To get the monthly repayments, divide this amount by the number of months.
Bridging the monetary gap needed in completing a property transaction is easy with a bridging loan. Still, you need to find one with the best interest rates to save on costs. You should consider working with a financial advisor to help you determine the best fit.
- Bridge loan is a common financial tool used by many homebuyers.
- The loan costs will depend on the property value, ability to pay, and good credit scores.
- Bridge loans can also be used by those in the business of restoring and renovating properties.
Do you need immediate access to a bridging loan? Bugis Credit is a trusted licensed moneylender in Singapore that offers excellent bridging loans without the stringent credit check. Apply now and get your loan application approved within the same day. Or, fill up our quick form online to get a free quote with no commitment.