The housing market, like everything else, suffered because of the unfavourable economic conditions resulting from the pandemic. However, the good news is that the market has since been on an upward trend.
This has made it much more affordable to own a building and boasts the resale market. More people are looking to buy their first building, while others are looking for upgrades since the market is more favourable to selling their previous properties.
What Is a Bridging Loan?
A bridging loan is a financing option that new property buyers can access to help fund down payment costs. If you already have a property that you are looking to sell, but the property transaction has yet to go through, and you are looking for a way to finance the purchase of your next house quickly, this is one of the best scenarios to take a bridging loan.
If you do not have enough savings and all your CPF funds are tied up in the house you are yet to sell, a bridging loan can provide you with enough funds to cover the down payments for your purchase.
Depending on the eligibility and requirements criteria, different lending institutions will offer different parameters for a bridging loan. For example, depending on their lending terms, some will give you enough to cover down payments.
Most importantly, a bridging loan may have different parameters than a traditional property loan.
Types of Bridging Loans in Singapore
Only two types of bridging loans are available in Singapore financial industry. The main difference between these two types is how they are repaid. Let us briefly look at each type and what makes it unique from the others.
Simultaneous Repayment Bridging Loan
With this sort of bridging loan, one must make monthly loan repayments of both their house loan and the bridging loan simultaneously. This may be rather taxing.
Before you choose a simultaneous monthly repayments loan, keep in mind you only have six months to 1 year to complete the sale of your listed property and use the net sales proceeds and CPF funds for loan repayment.
Note: Simultaneous repayment is not available from licensed moneylenders.
Capitalised Interest Bridging Loan
Capitalised interest bridging loan covers some cost of your new house. The loan payment will begin after your previous home is sold. This is a suitable alternative if someone does not wish to pay two loans simultaneously.
Pros of a Bridging Loan
- It can be accessed from both banks and money lenders
- Even people with no credit scores can still benefit from licensed moneylender bridging loans
- They are processed quickly compared to other traditional home and property loans
- You can use CPF funds to pay back the loan
Cons of a Bridging Loan
- Banks will require collateral to approve your loan. They will seize and auction it if you default.
- Higher loan interest rates and a shorter loan tenure compared to home loans.
- Enough cash only to cover the down payment and not the full property’s purchase price.
How Much Is HDB and The Down Payment?
The pricing of HDB will vary depending on the property value one is looking to buy. However, it is essential to note that the percentages of down payments are set. Yes, down payments, since there are two. The first is a cash deposit of 5% of the new property value, and the second is a 20% CPF deposit.
Consider the example scenario below:
Your old property is in the market, but the sale is yet to be completed, while at the same time, you are looking to buy a new HDB building priced at $1M. The new property will require payments as follows:
- A 5% cash downpayment (the first) equaling $50K.
- A second downpayment in cash or CPF of 20% of the price equaling $200K.
- Lastly, a loan to cover the remaining 75%.
Now, assuming that you have funds to cover the first downpayment but cannot pay the second downpayment, this is where you can take a bridging loan to finance the $200K required.
Bridging Loan Vs Traditional Loans
Let us look at the differences between bridging loans, HDB House Loans, and Bank Loans.
REMEMBER: There is a difference between HDB bridging loans (keyword “bridging”) and HDB House Loans. While HDB does not offer bridging loans, it does offer HDB House Loans for second-time buyers looking to own property in the HDB scheme. However, this option does apply to first-time buyers or individuals looking to own property not in the HDB scheme.
| Money Lender Bridging Loan | Bank Bridging Loan | HDB Housing Loan | |
| Offered by | Licensed Money Lenders, e.g., Bugis Credit | Banks | HDB through PFIs |
| Amount | Max of 6 times your monthly salary | Up to millions depending on your property and collateral. (75 LTV ratio of the purchase price) | Up to 85% LTV of the new property’s purchase price |
| Loan Tenure | One month, or up until the sale of your listed property is closed | Up to six months or until the sale of your old property closes | Up to 25 years |
| Purpose | To cover some costs of the down payment | Down payment | Owning the house |
| Security | No collateral | Collateral required | Collateral needed |
| Property Type | All property, including private property | Depends on institution | HDB Flat |
Top Bridging Loans in Singapore
Here is a comparison between the top bridging loans from banks and moneylenders to guide you on what to expect.
| Interest Rate | Tenure | Property Type | |
| Maybank HDB Home Loan | 1.4 to 1.6% | At least six months | HDB |
| DBS Bridging Loan | Prime Rate | Up to six months | All property types |
| Standard Chartered’s HDB Bridging Loan | 3 month’s SIBOR + 2.00% p.a. | Six months | HDB |
| UOB HDB Home Loan | 4% to 5% | At least six months | HDB |
| OCBC Home Loan | 1.55% p.a. | Up to six months | Home |
| Money Lenders Bridging Loan | 1-4% p.m. | One month or until the property is sold | All property types |
Insights
Banks provide loans with slightly better interest rates, an extended loan tenure, and a more significant amount. However, not all of them offer loans to all property types. Also, they take about a week or more to process and disburse the loan.
Even though licensed lenders might have a slightly high interest rate, they have more lenient requirements and offer loans based on your ability to pay, not your credit score. They process loans faster than banks can, usually within the same day.
How to Qualify for a Bridging Loan
Below are some eligibility and requirements for bank and moneylender bridging loans in Singapore.
Eligibility & Requirements for Bank Loan
Eligibility
- A citizen, permanent resident, or foreigner living in the country
- 21 years or older
- Documents showing you have a property you are selling
- Documents of property ownership
- High credit score
Requirements
- Documents proving your employment and income
- Copy of your OTP document
- History of CPF account
- Copy of your NRIC or ID documents
- Documents proving residence
- Statements showing any current bank loans, if you have any
- SingPass for signing in to CPF, IRAS, and HDB websites
Eligibility & Requirements for Moneylender Bridging Loan
Eligibility
- 21 years old or older
- A citizen, permanent resident, or foreigner living in the country
- Exercise OTP (Option To Purchase)
- A monthly income of over $1,500 for citizens or $2,000 for foreigners or permanent residents.
Requirements
- Documents proving your employment and income
- Copy of your OTP document
- Copy of your NRIC or ID documents
- Documents proving residence
- SingPass for signing in to CPF, IRAS, and HDB websites
Closing
A bridging loan can be an excellent option for anyone looking to own a new property before selling their old house and does not have significant or enough money to fund the down payments. These loans can be helpful, especially;
- When you need funds quickly to help cover the down payment and secure the sale agreement of a new property.
- Suitable choice if you are only looking for a short term loan solution to owning a house.
- They are offered by different banks and licensed moneylenders in Singapore.
- Do not want to use or deplete your savings or cash savings and reserves when buying a new property.
While banks offer bridging loans, so do licensed moneylenders in Singapore, such as Bugis Credit. Bugis Credit has lenient and reasonable eligibility requirements to ensure you get a bridging loan you want without any hassles like with banks. Get in touch today, and get a quotation for your bridging loan or the other types of loans we offer!
