How Much Is A Bridging Loan In Singapore?
March 2, 2023
Are you looking to purchase a new property in Singapore before the sale of your existing one is finalized? A bridging loan might be the solution you’re looking for to make that transition easy.
Bridging loans provide temporary financing to help you “bridge” the gap between buying a new home for instance and selling your current one. In this article, you’ll learn all about bridging loans, how much is a bridging loan, what to know before taking out a loan, and how to apply for one.
What Is A Bridging Loan?
A bridging loan in Singapore is a short-term loan that can be used by homeowners looking to purchase a new property before selling their current one.
It provides the extra funds you need to make your new home purchase happen, without having to wait for the sale of your current property. Basically, it bridges the gap between buying your new place and selling your old one.
This type of loan is often secured against the equity in your current home and is meant to be paid back once that property is sold.
Bridging loans are offered by specialized lenders and are designed to be a convenient and flexible option for those in need of short-term financing.
Capitalised Interest Bridging Loan Vs Simultaneous Repayment Bridging Loans
You may have heard about these 2 bridging loan types, but don’t really understand the difference. Let’s break each term down.
Capitalised Interest Bridging Loan
A Capitalised Interest Bridging Loan provides allows you to get full funding for your new home while avoiding paying for two loans simultaneously – your current home’s mortgage and the bridging loan.
Repayment on the bridging loan only begins after you’ve sold your current property, and eases your financial burden during the transition. Only banks offer this bridging loan option, licensed moneylenders do not.
Simultaneous Repayment Bridging Loans
Simultaneous Payment Bridging Loans are the opposite of Capitalized Interest Bridging Loans. It requires borrowers to make repayments on both their home loan and the bridging loan at the same time.
This type of loan may pose a higher level of financial stress for some individuals. However, it does come with the benefit of lower interest charges compared to capitalized interest loans.
How Much Is A Bridging Loan?
The cost of a bridging loan depends on various factors such as the loan amount, loan term, interest rate, lender fees, and any associated costs.
The interest rate for bridging loans is typically higher than traditional long-term mortgage loans due to the short-term nature and higher perceived risk of these loans.
The loan term is also generally shorter, typically 6 months. Lenders may also charge additional fees such as processing fees, appraisal fees, and early repayment fees. It is important to carefully compare the costs and terms of different bridging loan options to find the best one that meets your needs and budget.
Additionally, you should consider consulting with a financial advisor or a bridging loan expert to help you evaluate your options and make an informed decision.
How To Calculate A Bridging Loan
To calculate your bridging loan, you’ll need to use a bridging loan calculator or a housing loan calculator in Singapore.
Here are some important terms to be aware of when it comes to calculating a bridging loan.
1. Net Loan Amount
This is the amount you’ll receive once your loan is granted less processing fees, application fees, and other initial costs.
2. Gross Loan Amount
This is the total amount you’re required to have paid at the end of the loan tenure. This includes both capital and interest.
3. Monthly Interest Rate
This is the interest rate you’re required to pay each month as a cost for the loan. The interest is usually dependent on the loan tenure and loan amount.
4. Loan Tenure
This is the duration you are given to repay the loans. In Singapore, bridging loans are mandated to be repaid in 6 months.
5. Loan to Value (LTV) Ratio
This is the maximum amount you can be granted to finance your property in Singapore. Banks have an LTV ratio of 75%, while HDB now has an LTV of 80% as of September 2022 (This was previously 85%).
By calculating your bridging loan, you know:
- How much you can borrow
- The total amount you’ll pay back
- Interest rate, and
- The overall cost of the loan
What To Know Before Getting A Bridging Loan In Singapore
Before getting a bridging loan in Singapore, here are important factors to be aware of.
1. Bridging Loans Are Secured Loans
Your property is used as collateral for the loan. You have to ensure that you can pay off the loan in a timely manner, or you risk losing your property.
2. The Wrong Valuation Of Your Property Can Be Detrimental
When evaluating your property, make sure it is valued properly according to the market condition at a point in time. If you overestimate the value of your property, and the sales proceeds fall short of that value, you might end up paying for that shortfall with cash that you might not have.
3. How Much You Can Borrow
How much you can borrow depends on your LTV for that property. Say you want to buy a property that costs $1 million, and the bank is only willing to advance you and LTV of 75%. This means you get $750,000, and you’ll need to only borrow a bridging loan of 25%, which is $250,000.
4. The Cost Of Taking Out The Loan
The cost of a bridging loan will include fees such as processing fees, application fees, as well as the interest rate of the loan. The cost of the loan will be different for each lender, so be sure to shop around and go with one with the least cost.
5. Interest Rate
Since bridge loans are short-term loans, the interest rates are usually high compared to other loan types. Ensure the interest rate you’re paying for your bridging loan is competitive.
6. What If The Sale Of Your Old Property Doesn’t Go Through
While we all hope for the best, it’s better to be prepared for situations like this. For whatever reason, the sale of your property might not pull through, at this point what do you do seeing that you have taken out a bridging loan already?
Most banks or loan providers will have an exit clause for the loan as a part of the bridging loan terms. You want to read and understand what do terms are before signing the agreement.
Shop around for loan providers with the least penalty cost for exiting the loan should in case your property sales don’t pull through.
How To Use A Bridging Loan To Lower Your LTV Ratio
You can use a bridging loan to lower your LTV ratio when getting a loan for your new home. Here’s how.
When you want to buy a new home, three are things involved.
- An LTV ratio of 75% to 80% depending if you’re borrowing from the bank or the HDB
- A 5% cash down payment, and
- A 20% Cash and/or CPF down payment.
Say you want to purchase a new home that costs $1 million, and you’re expecting $400,000 in sales proceeds from your old home.
You can borrow a loan for your new home at an LTV of 75% ($750,000), pay the cash downpayment of 5% with your own money ($50,000), and get a bridging loan of 20% ($200,000).
Once you get your proceeds from the sales and pay off your bridging loan, you still have $200,000 left. You can choose to use this amount to offset your new home loan by waiting for the pre-payment penalty period to pass, or you can use it from the beginning to lower your LTV.
For the second scenario, Instead of getting an LTV of 75%, you can get one of 55%. So the bank only advances you 550,000 for your home loan.
Then, you take a bridging loan of $400,000. Once you have your sales proceeds, you pay off your bridging loan, and you now have a lesser mortgage amount to pay off.
Keep in mind though that a higher bridging loan may incur a higher interest rate.
How To Apply For A Bridging Loan
To apply for a bridging loan, you’ll need to meet some basic eligibility requirements such as:
- Be between 21 to 65 years old
- Be a Singaporean or permanent resident
- Be the owner or joint owner of the property to be purchased and sold.
Eligibility requirements can vary between different loan providers, so do well to research and find out what those are for the providers you’re considering.
You will also be required to present the following documents.
- Option to Purchase (which shows that you have the right to purchase the property in question)
- CPF withdrawal statements, and
- Outstanding bank or HDB loan statement for the old property
Where To Apply
Banks such as DBS, UOB, and standard chartered offer bridging loans with interest ranging from 4% to 6%.
Depending on the bank, you may be required to only pay the interest before the sale of your property, or pay the interest and loan amount in full after the sale of your property. Banks may also have stricter eligibility requirements, and longer application times compared to licensed moneylenders.
2. Licensed Money Lenders
Licensed money lenders can advance you a bridging loan quickly, and the loan has an interest rate capped at 4%. Money lenders also have less stringent eligibility requirements.
As usual, whether you choose to borrow from banks or moneylenders, shop around for one with the best rates, and loan policies.
Finance The Downpayment For Your New Home With Low Interest
If you’re looking for a bridging loan with a low-interest rate, and a quick application time, GS Credit has got you covered.
With quick approval processes, easy applications, and fast funding, a bridging loan from GS could be just what you need to make your dream of a new home a reality.
All you need to do is contact us today to speak with a bridging loan expert or apply online for a bridging loan, and get your loan disbursed in less than an hour.