How Long Does It Take To Get A Bridging Loan?
November 18, 2022
Using a mortgage loan to finance a home purchase may not be an unfamiliar concept to you. If you’re not too familiar with mortgages, how about a bridging loan?
You can think of it as a temporary mortgage.
A bridging loan could come in handy when you sell your present home but still need help with covering the cost of our new one.
In fact, it can be an invaluable financial lifeline, especially when a sizeable sum of money is involved. But the real question is, how long does it take to get a bridging loan?
How Does A Bridging Loan Work?
Bridging loans, or bridge loans, are short-term loans that can be used for a downpayment on another property before the proceeds from selling your present home can be collected.
For most people, this short-term loan is taken out when they decide to move to a bigger property than their current residence.
But be sure not to confuse this with the Temporary Bridging Loan Programme (TBLP). That’s a government-backed loan to assist firms in meeting short-term cashflow needs.
Lending institutions that provide bridge loans will manage the funds necessary to purchase the replacement property. In addition, they will assume your present mortgage.
After this point, your bridging loan payments will typically consist of just the interest for the next six months.
Your maximum debt will include the purchase price of your new home and the balance of your existing mortgage. It will also consist of any applicable stamp duty, legal expenses, and any capitalized interest on your bridging loan that you should pay until your current home is sold.
When you finally sell your previous home or property, you’ll manage your bridging loan in Singapore just like any other mortgage or home loan.
How Long Does It Take To Get A Bridging Loan?
The approval process for bridging loans is typically much shorter than for conventional short-term loans. The funds can be given within 24 to 48 hours.
Licensed lenders may be able to approve a loan in as short as an hour under certain circumstances.
As a short-term loan, a bridging loan typically has a repayment period of up to six months. The lender determines the repayment period.
Due to a bridging loan’s interest rate and short loan tenure, keeping the total amount borrowed and interest costs to a minimum is essential.
Types Of Bridging Loans
In Singapore, borrowers can choose between two different bridging loan options.
Capitalised Interest Bridging Loan
This type of bridging loan allows borrowers to avoid paying any money out of pocket while they wait for permanent financing for a new property.
Mortgage payments are postponed until after the current residence has been sold. This is a good option if you need money for the downpayment quickly and don’t want to take out two loans.
Simultaneous Repayment Bridging Loan
In this case, a bridge loan can be used to pay off both the existing debt and new mortgage.
You’ll have one year to sell the property and begin making payments on the loan.
As opposed to traditional loans, bridging loans in Singapore have a shorter repayment period of only six months.
You can borrow as little as necessary for the downpayment, depending on your needs. A bridging loan can take care of as much as 25% of the purchase price and a chunk of the mortgage.
Moneylending companies don’t provide these two varieties of bridging loans. It’s possible to borrow up to six times your annual wage, but that sum may vary depending on individual circumstances.
What To Consider Before Getting A Bridging Loan
There are a few factors that come into play when handling bridging loans in Singapore. These include:
Bridging loans cost more than traditional mortgages. In that case, the bridging loan interest rate is significantly higher.
Most banks provide annual percentage rates between 5-6%. The interest on bridging loans might be paid before the principal is repaid, depending on the bank or financial institution. Once you’ve sold your current home and collected the proceeds, you can repay the bridge loan.
Licensed money lenders are restricted from charging more than 4% monthly interest. This cap applies regardless of your income level or whether you have several secured loans.
Remember that interest must be paid on a bridging loan. Additional fees and interest will also be charged for late payments.
So it is crucial to ask yourself if you can afford the monthly payments in addition to your new mortgage.
Remember that a bridge loan can often finance up to 25% of the purchase price of your new home.
Since the loan duration is short and the interest rate is high, it may be best to borrow just what you need. Borrow the minimum amount necessary to cover the downpayment and closing costs.
The loan duration is decided at the discretion of the lending institution. On the other hand, banks typically allow you six months to repay your debt.
As a result, you need to consider how much money you can borrow. High monthly payments may be necessary due to the interest rate and length of the loan.
There is a certain level of risk associated with bridging loans, as with any loan. A bridging loan typically requires you to put up your home as collateral.
Even before you cash in on the proceeds from selling your current home, you’ll need to secure a sizeable property loan.
The terms and conditions of bridging loans vary depending on the lending institution. Consider the potential consequences carefully before moving forward.
How To Lower Your LTV Ratio Using A Bridging Loan
You might be relieved to know that you can use your bridging loan to lower your loan-to-value (LTV) ratio. That would in turn increase your chances for a loan the next time you need one.
A lower LTV ratio means you borrow less. When you borrow less, your loan is regarded as less risky by a lender. This increases your chances of approval.
One way to lower the LTV ratio would be to increase the size of the bridging loan.
You can pay back the bridging loan, which covers the difference between the downpayment and the mortgage, once you’ve made a profit on the sale. On the downside, you’ll have to pay more in interest because the loan amount has increased.
Short-term bridging loans in Singapore can either have capitalised interest or be repaid in full simultaneously.
There is no practical difference between the two types of bridging loans in Singapore. Both must be repaid within six months.
You only need to consider the available possibilities. Do you want to cover the downpayment, or do you also want to cover a portion of the mortgage?
Pros And Cons Of A Bridging Loan
Since you now have an overview of what is a bridging loan in Singapore, let’s compare the advantages and downsides of applying for one.
- They’re dependable. Quick property purchases are possible in situations such as auctions.
- They’re malleable, free of “checkbox” constraints, and tailored to the borrower’s specific situation.
- You have a high rate of productivity. Bridge loans, for instance, can be processed in as little as three days, but more traditional loans can take weeks.
- There is a large sum of money available for borrowing.
- It has a lower monthly interest rate compared to a personal loan.
- Failure to repay a bridging loan may result in you losing your home or other valuables.
How To Apply
This is what happens when you apply for a bridging loan:
- Your application is submitted to the lender online.
- The lender conducts a review or investigation of your credit history.
- The lender approves or rejects your application.
- If your application is successful, you will receive the funds shortly.
The loan tenure for a bridging loan is relatively brief. So you’ll need to prove to the lender that you’re financially stable before it can trust you with the money.
Make sure you have all appropriate documents such as the Option to Purchase (OTP), which proves that no one else has the right to purchase the property.
You should also prepare your credit report, income proof, and bank loan statements. You must also provide evidence of your financial capability, such as bank and CPF withdrawal statements.
You can work with a specialised broker, bank, or private lender. Do some research on their rates beforehand.
Bridging loan interest rates typically range from 5-6%, but vary between lenders. Unlike conventional loans, which can take months to process, bridging loans can provide you with the funds you need in as little as a week.
Before approving your bridging loan application, your lender will want to know if you plan on paying it back on time or ahead of schedule.
Some lenders tack on additional costs if the loan isn’t repaid by the due date. You may incur additional charges or have to relocate temporarily if you don’t have a contingency plan.
Is It Time To Get A Bridging Loan?
If you’re still having trouble understanding how a bridging loan works, it might be time to seek out some one-on-one guidance.
You can also effortlessly apply for a personal loan.
In the meantime, if you still have questions about home loans, feel free to peruse our site for other resources we have made available on the topic.