Key Facts About Bridging Loans in Singapore

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You’ve decided to upgrade your home from the HDB flat you’ve been living in for years, to a bigger and better property. Except you’ve run into one issue - you have yet to receive the sales proceeds from your old property. The time for making the down-payment on your dream home is arriving and you don’t have enough funds yet. To make matters more complicated, the loan you took from the bank hasn’t been approved yet.

Thankfully, there are certain types of loans that can help you transit smoothly into purchasing your new home. These types of loans are known as bridging loans.

What Is a Bridging Loan?

A bridging loan, as the name suggests, is a short-term loan meant to ‘bridge’ the monetary gap between the sale of your old property and the purchase of your new one. They are designed to tide you over until you receive the proceeds from the sale of your property. As such, they are meant to be fully repaid within 6 to 12 months. Bridging loans can also be used to finance a renovation while waiting for approval on a mortgage application.

How Do Bridging Loans Work?

A bridging loan usually lets you borrow up to 15% of the purchase price of your new home. It generally comes with a tenor of up to 6 months. You can apply for a bridging loan by providing your Option to Purchase document. This is a contract for the specific property which gives you the exclusive right to purchase it. Many banks that provide home or mortgage loans also provide bridging loans.

 Interest rates are usually 5%~6% per annum. You can choose to service only the interest during the tenor, and repay the principal when you have received the sales proceeds from your old property. Take note that you can’t apply for mortgage loans and bridging loans from different banks.

 Taking a bridging loan can be quite expensive since they have higher interest rates and fees. Before taking one, consider the tenor length, fees, and interest rates as they can put a large dent in your finances.

What Kinds of Bridging Loans Are There in Singapore?

You can apply for two types of bridging loans - Capitalised Interest Bridging Loans, and Simultaneous Repayment Bridging Loans.

 Capitalised Interest Bridging Loan

Repayment for this type of loan will be activated only after your original property has been sold. The bank will finance the entire amount of your new house. Interest will accrue over the entire tenor of your bridging loan and you will cover the entire principal amount and resulting interest.

 Simultaneous Repayment Bridging Loan

For such loans, you are expected to make payments on both your new home and bridging loan at the same time, hence “simultaneous”. You have a time frame of 12 months, during which you have to sell your old property and repay the loan.

Do perform your own due diligence by researching the various policies of banks for home loans and bridging loans. For example, certain banks may have conditions such as how many lump sum payments you can make at once.

 

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To get more guides like this, check out PropertyGuru.

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