How To Calculate A Bridging Loan In Singapore
October 28, 2022
Are you looking to upgrade your HDB flat to a bigger and better one?
If you are short of funds for a new property and have yet to receive proceeds from your old property, applying for a bridging loan is the way to go.
In Singapore, signing up for a bridging loan is not new.
Some Singapore licensed money lenders even offer up to six times of a borrower’s monthly salary for the loan.
To get the best deal, you should know how to calculate bridging loan.
Continue reading to find out what you need to know before taking a bridging loan.
What Is A Bridging Loan?
A bridging loan is a short-term, property-backed loan. It is also known as a short-term home loan or interim mortgage.
A bridging loan can be pretty expensive owing to its high interest rates. But it is one of the fastest ways to ease your property cashflow issues.
Why Do You Need A Bridging Loan?
As its name suggests, you can use a bridging loan to settle downpayments or clear other housing expenses while awaiting the sale proceeds from an existing property.
Some borrowers view bridging loans as more flexible and low-pressure than a standard bank loan.
This is because the paperwork required for a bridging loan tends to be less extensive, with the option of flexible repayments. You can choose to make short-term repayments or start after you receive the proceeds from your old property.
A bridging loan is also payable after a short period, usually no longer than six months. This means you won’t need to bear its financial burden for years.
How Can A Bridging Loan Help?
Here are some ways that a bridging loan may come in handy.
Quicker Home Upgrade
The idea behind a bridging loan is that it might take you some time to sell your old property. Yet during this time, you may wish to move into the new property.
A bridging loan in Singapore would help you to quickly raise capital for your home upgrade or purchase.
Applying for a bridging loan is fast and straightforward. The application and approval usually takes between five to 14 days, instead of weeks.
A bridging loan in Singapore can be used to finance almost any type of property. Thus, it can be of help when you want to:
- Prevent repossession
- Acquire property below market value
- Urgently purchase property, such as in the case of an auction
- Fund the restoration of a property
What To Consider Before Getting A Bridging Loan
The considerations for a bridging loan can still be overwhelming under certain circumstances despite its presumed low-pressure terms.
Below are some vital issues to consider before signing up for a bridging loan.
Always consider the total loan amount of a mortgage loan. The higher the total amount, the more the risk.
Some money lenders disguise expensive loans with low interest rates, only to charge fund management and exit fees later.
Considering the total loan amount will help you discover the hidden costs, preventing you from paying more than what you applied for.
Always do your research before signing up for a bridging loan. Also, ask for a total loan breakdown from your money lender.
Monthly Repayments And Interest Rate
Ensure your monthly repayments are not too high. High, short-term interest rates may make it hard for you to cope financially, much less save money.
If you are thinking of taking a bridging loan, its tenure should be long enough to allow for the completion of the sale of your existing property.
This is because if the tenure is too short, you might have to rush to sell your property and receive much less than its worth.
But do not delay in paying your bridging loan. Pay promptly to avoid the financial stress that may result from settling your loan repayments with the property purchase.
Research transactions in the real estate market before taking a property loan in Singapore. You could seek help from a third-party licensed valuer so your property is not undervalued.
On the other hand, overestimating your property could land you into trouble with lenders.
There are different licensed money lenders in Singapore that offer different bridging loan terms. Check with two to three lenders to find one that suits your property needs best.
Read the fine print carefully before signing anything.
Also, be aware that when you get a bridging loan, the lender will use your property as collateral. Ensure that you can repay the loan, or you may lose your property.
How To Apply For A Bridging Loan
Finding a bridging loan can be difficult, depending on your licensed money lender of choice. Here at GS Credit, we have made our application, consultation, and loan processes reasonably easy for our clients.
Once we receive your documents, we will recommend a loan package that is suitable for you.
You must be at least 21 years old and a citizen of Singapore, permanent resident, or foreigner who is selling your property in Singapore.
- Option to Purchase copy that states your right to purchase the property
- CPF withdrawal statements
- Bank statements
- Proof of residence
How To Calculate A Bridging Loan
Knowing how to calculate bridging loan involves taking the below into consideration:
- How much to borrow
- Interest rates
- Actual loan costs
- Amount to pay back
However, before we get into how to calculate a bridging loan, there are a few terms you should know:
Net Loan Amount
This refers to the total loan amount that you receive from the lender after deductions.
Gross Loan Amount
This is the total amount (principal amount plus interest) you will have paid at the end to the lender.
Loan-To-Value Ratio (LTV)
This denotes the total amount you can borrow for property or home financing. Banks in Singapore have a set LTV of 75%, and HDB allows an LTV of 85%.
Consider the following scenario:
You want to buy a property priced at $1,000,000, yet the total net sales you expect from your old property is $500,000.
The seller requires a cash downpayment of $50,000 and a non-cash downpayment of $200,000. The maximum loan you qualify for is 75% LTV.
What are your options?
You could pay the $50,000 cash downpayment using your funds. Next, you could take a $200,000 bridging loan to cover the non-cash downpayment.
Finally, you could take the bank loan of $750,000 to cover the rest of the amount.
Once you get the proceeds from your old property, repay the bridging loan.
Other Fees And Charges
If your payments are late, you may be charged with 3-5% of charges depending on your money lender. Be wary of late payments as they will be reflected in your credit report.
Which Banks Offer Bridging Loans*?
- Repayments made after the old property sale
- Up to six months’ loan
- Applicable for all types of property
- Prime rate pegged interest rates
Standard Chartered Bank
- Up to six months’ loan
- Applicable for HDB flats
- Three-months SIBOR plus 2% annual interest rates
United Overseas Bank
- Up to six months’ loan
- Appropriate for all types of property
*Information correct at time of publication
Frequently Asked Questions
What Are Some Types of Bridging Loans?
There are capitalised interest bridging loans and simultaneous repayment bridging loans.
A capitalised interest bridging loan covers the price of the new home you are intending to purchase.
Its repayment only starts after you sell your current home, so you won’t have to pay two loans at the same time.
Conversely, a simultaneous repayment bridging loan requires you to pay your home loan and bridging loan simultaneously.
Are Bridging Loans Necessary?
Bridging loans can help you raise property funds within a short time. But if you have enough savings on hand, you do not need them.
How Much Can I Borrow With A Bridging Loan?
You can borrow up to 25% of the new property purchase price.
Can My CPF Be Used To Settle A Bridging Loan?
Yes. Though the loan interest rates may require cash servicing, you can use your CPF savings to settle your bridging loan.
What is The Approximate Interest Rate On Bridging Loans?
It is between 5-6% per annum, depending on the money lender.
Get The Right Bridging Loan For Your Needs
Now that you know how to calculate bridging loan, you can look for lenders that offer it.
GS Credit is a trusted licensed money lender in Singapore with years of experience. Our trained loan advisors will ensure that you get the best assistance.