How Long Does It Take To Get A Bridging Loan?
Despite the impact of the Covid-19 pandemic and an uncertain global economic outlook, Singapore’s real estate market is still showing strong demand.
Those who are thinking of buying new properties may have experienced a gap in funds when the downpayment must be paid for the new property, but the old property has not been sold yet. In such instances, a bridging loan can be useful.
What, then, is a bridging loan? What are its pros and cons? More importantly, How long does it take to get a bridging loan?
What Is A Bridging Loan?
As the name implies, a bridging loan or bridge loan provides you with the funds you need to purchase your next home, even if you are still awaiting the proceeds from the sale of your present home.
This type of short-term loan is typically taken out by those who have not concluded the sale of their old home but want to stake their claim on a new one.
Do not confuse it with the Temporary Bridging Loan Programme (TBLP), a government-supported loan to assist businesses in obtaining working capital.
How Long Does It Take To Get A Bridging Loan?
You might have read somewhere that bridging loans cannot exceed 20% of the property’s worth (i.e. the non-cash downpayment portion of a non-HDB loan). Indeed, this is the usual practice.
If the proceeds from the sale of your current home can cover it, you are likely to get your bridging loan approved. Or you may choose to use a bridging loan to get a lower LTV ratio.
Once your bridge loan is granted, the lender will handle the financing for the new property you purchased. It will also assume your current mortgage.
From this point onward, you will be required to make interest-only monthly payments on your bridging loan for approximately six months.
Here are a few things you should know regarding bank-issued bridge loans:
|Bank Bridging Loan|
|Maximum Amount||The maximum amount is determined by the net revenue and CPF balance from the sale of your old property|
|Maximum Tenure||A bridging loan is usually settled within six months|
|Interest Rate||Varies between banks, but typically ranges between 5-6% per annum|
If, for some reason, you do not qualify for a bridging loan from a bank, you can turn to licensed money lenders for help.
Here’s some important information to get you started:
|Money Lender Bridging Loan|
|Maximum Amount||Up to 6x your monthly salary|
|Maximum Tenure||Up to one month or until the completion date of the property|
|Interest rate||1-4% per month|
So if you’re wondering how long does it take to get a bridging loan, in general, bridging loans have quicker approval times than other forms of short-term financing.
Most of the time, bridging loan funds are often accessible within 24 to 48 hours. In rare instances, licensed lenders can provide loans within one hour if you provide the relevant documents.
Types Of Bridging Loans
In Singapore, there are two types of bridging loans, the capitalised interest bridging loan and the simultaneous payment bridging loan. Let us discuss these in detail:
Simultaneous Payment Bridging Loan
This arrangement allows you to pay off both the new mortgage and the bridging loan simultaneously. You have a year to sell your previous home and begin loan repayment.
Capitalised Interest Bridging Loan
This bridging loan will cover the entire purchase price of your new home. Your mortgage payments won’t begin until you sell your current home. This is a fantastic alternative if you do not wish to have two separate loans simultaneously.
As you can see, the simultaneous payment bridging loan is undoubtedly the more laborious of the two options.
In Singapore, however, borrowers must repay bridging loans within six months. Thus, the differences between the two categories are not important. You just need to choose if you want to borrow only enough to cover the downpayment or up to 25%, plus a portion of the mortgage.
As a precaution, keep in mind that these two types of bridging loans are not available from licensed money lenders.
If you borrow from a licensed money lender, you must repay the loan within one month or by the completion date of your property. Depending on your income, you can borrow up to six times your annual pay.
What To Consider Before Getting A Bridging Loan
Obtaining a bridging loan in Singapore is more accessible than other loans. However, there are other factors to consider prior to accepting this loan such as the following:
Taking out a bridging loan requires prudence. Determine if it’s viable to obtain a bridging loan and make the monthly repayments by taking your time to calculate the numbers. First, ensure that you have adequate funds in case your income is insufficient to support the monthly installments.
Secondly, ensure that you can afford the payments in addition to your new home’s mortgage. Keep in mind that there are interest fees associated with bridge loans. In addition, if you pay late, you will suffer late interest rates and surcharges.
Bridging loans are notoriously more expensive than conventional mortgage loans. Unfortunately, the interest rates on bridging loans are also significantly higher. Bank rates typically vary between 5-6% per annum. Nevertheless, not all is bleak.
For example, you have the option of paying off the interest first, depending on the lender. Once you’ve acquired the profits from selling your previous property, you can repay the bridging loan.
Licensed money lenders can only charge a maximum monthly interest rate of 4%. This cap applies regardless of your salary or whether the loan is secured or unsecured.
As previously stated, a standard bridging loan can finance up to 25% of the purchase price of your new property. However, just because you can borrow that much does not imply that you should.
Due to the high interest rate and short loan tenure of a bridging loan, it is prudent to only borrow what is necessary.
As bridging loans are essentially short-term loans, repayment terms are often up to six months. The term varies depending on the lender.
Be mindful of the amount you are borrowing and the interest rate, as a short-term loan can result in extremely high monthly loan payments.
You must be willing to accept a certain degree of risk to proceed when obtaining a bridging loan. In most circumstances, bridging loans are secured by your property.
You are obtaining a substantial loan before receiving the cash from the sale of your property. But there is a higher-than-usual interest rate and a small window to repay the borrowed sum in full.
How To Apply
- Use loan comparison mobile apps and websites to obtain the best offer on the market. These sites enable you to compare loan offers from licensed money lenders and institutions for free.
- After carefully considering your financial needs and objectives, choose the most suitable bridging loan.
- Ensure you meet the eligibility requirements. Before applying, you must be a Singapore citizen, permanent resident, or foreigner in the process of selling a home. You also need an excellent credit score.
- Submit your application for a bridging loan to the bank or money lender that best meets your needs.
- Depending on the bank or money lender you select, you should receive the funds for your bridge loan within 24 to 48 hours.
Pros And Cons Of A Bridging Loan
- Bridging loans are often approved faster than other forms of short-term financing. You can obtain the loan within 24 to 48 hours. In certain circumstances, licensed money lenders can provide loans within one hour.
- They offer loans with large sums. Since your property serves as collateral for the loan, you can borrow any amount you want. But only borrow what you need.
- You can apply for a simultaneous payment bridging loan or capitalised interest bridging loan.
- In the event that you default on your loan payments, you could lose your home.
- Bridging loans have much higher interest rates than other types of short-term loans.
- You may have to pay exit fees, arrangement costs, and other expenses for using bridging loans may apply.
A Bridging Loan Can Be A Good Stop-Gap Measure
Bridging loans provide an alternative to property investors who are encountering delays or difficulty in getting the money from the sale of their old property prior to a big move. Always keep in mind that bridging loans and mortgages are not the same.
Now that you know how long does it take to get a bridging loan, ensure you have a Plan B in the event that the sale of your old property falls through. This is a possible nightmare situation that you should be mentally prepped for.
Before taking up a bridging loan, confirm with your banker the details of exit provisions in the event that the sale of your old property does not work out for some reason. It always pays to be prepared.
As mentioned, the terms and conditions of a bridging loan may differ from bank to bank. So you must confirm with your banker and consider everything carefully before making a decision.
If you’re in need of a quick loan with the best terms, Horison Credit is your best bet.