Everyone is looking to move up in life. So it is common for homeowners to want to move into a newer, better home before selling the old one. 

In Singapore, licensed money lenders come in handy during financial emergencies. If you meet their criteria, you should be able to get a loan within 24 hours.

So if you may want to consider a bridging loan if you want to pay the downpayment for your new property before concluding the sale of your old property. 

This article will show you how to calculate bridging loan, how to qualify for it, and what to look out for. 

What Is A Bridging Loan?

In home ownership, a bridging loan is a short-term loan that gets you through the transaction of one property to another by bridging the gap in funds. 

This gap exists when you need to pay for your new property’s downpayment but have not received the funds from the old property that you’re selling. 

But whether your bridging loan is from a bank or HDB, it has a high interest rate. 

Do You Really Need A Bridging Loan?

You can determine if you need a bridging loan by knowing how it works and how to calculate bridging loan. 

Here are some things to note about bridging loans. 

Used For Downpayment Financing

A bridging loan is often used for a property’s downpayment. 

So if you do not have enough funds to make a downpayment for a property, you can apply for a bridging loan to stake your claim on the property. 

Short Loan Tenure

Selling a property can take a few weeks or months. As such, you may need a short-term financing solution for your new property during this time.

A bridging loan is not only processed quickly, but is often repaid in six months to a year. 

Can Be Used For All Property Types

A bridging loan is applicable for all property types. So your application is likely to be approved whether you need financing for a private or HDB property.

Flexible Repayment Options

Depending on the money lender, you can negotiate to start paying your bridging loan only after you receive payment for your old property. 

This gives you ample time to plan your finances and make repayment.

How Can A Bridging Loan Help?

Here are some advantages of using a bridging loan. 

Prevents Property Repossessions

Repossessions occur when a court gives an order to take a property from a borrower, primarily due to defaulted payments.

A bridging loan can stop property repossession by allowing a property owner to make payments. 

Address A Shortfall In Funds

Your old property may be sold below market value. For instance, if your old property was valued at $400,000 but sold for $350,000, you may not have enough for your new home’s downpayment. 

A bridging loan can be used to make up for this shortfall in funds. 

Urgently Purchase Property

Some situations may require urgent payment, such as during a property auction. Or maybe you have your eye on a property in a popular precinct.  

A bridging loan allows you to access capital quickly and make plans to settle the rest of the payments. This is ideal for both you and the lender.

What To Consider Before Taking A Bridging Loan 

Despite its benefits, a bridging loan can be a double-edged sword. It all depends on what it’s used for. Here are a few vital issues to consider.

Total Loan Amount

The purpose of a bridging loan is not to cover your entire loan. It usually finances up to 25% of a new property purchase.

Therefore, before taking a bridging loan, you should know how to calculate bridging loan amount to avoid repaying so much for so little. 

It is best if you can raise the money without the need for a bridging loan.

Interest Rate

Bridging loan interest rates are not the most affordable. In fact, they are downright high. So it can strain you financially, even if the loan tenure is short. 

Compared to regular home loans, bridging loans have a higher interest rate that ranges from 5-6% per annum for banks. Some lenders may allow you to pay off the interest first.

Short Loan Tenure

For most lenders, the loan tenure of a bridging loan is around six months. Thus, before you take a bridging loan, decide if you are able to make repayment every month.

Total Loan Cost

Apart from knowing how to calculate bridging loan, you need to take the following fees into account:

• Processing fees
• Administrative fees
• Total interest repayments
• Late repayment fees
• Closing fees

Value Of Your Property

If your new property is overpriced or underpriced, you will experience some complications with loan processing or repayments.

So make a point to determine the actual value of your property by consulting professional and competent valuers.

The Best Deal

Different banks and licensed money lenders offer different terms for property loans in Singapore. Do your borrower research with perhaps two to three banks and licensed lenders to find one that best suits your property needs.

Licensed money lenders’ processing fees do not exceed 10% of the total loan amount. Their maximum charge for late repayment is not likely to exceed $60, and there are no upfront fees before the loan is approved.

Applying For A Bridging Loan With A Licensed Money Lender 

Most licensed money lenders in Singapore require the following from a borrower for a successful bridging loan application. The list may vary slightly depending on the money lender.

Eligibility

• At least 18 or 21 years of age
• A Singaporean, permanent resident, or foreigner selling property in Singapore
• Good credit score

Documents Required

• Completed application form
• Identification and supporting documents
• Latest bank statements or CPF withdrawal statements
• Copy of the Option to Purchase (OTP)
• Proof of residence, income, and employment
• Singpass for HDB, CPF and IRAS logins

Applying For A Bridging Loan With A Bank

Banks have identical bridging loan requirements. This list may also vary depending on your bank of choice.

Eligibility

• Above 21 years of age
• Valid bank account
• A Singaporean, permanent resident, or foreigner selling property in Singapore
• Good credit score

Documents Required

• Identification card
• Proof of eligibility documents and supporting documents
• Latest bank loan statements
• Latest CPF withdrawal statements
• Copy of the Option to Purchase (OTP)

Calculating A Bridging Loan

Before knowing how to calculate bridging loan, you should know some of the following terms:

Gross Loan Amount

This is the total amount you will have paid at the end of the loan tenure to the lender. It includes interest and other fees. 

Nett Loan Amount

This is the total loan amount you will receive after deductions.

Loan-To-Value (LTV) Ratio 

In Singapore, this represents your loan limit with HDB or a bank, or the total amount you can borrow. Banks in Singapore have a maximum LTV of 75%, and HDB allows an LTV of 80% as of 30 Sep 2022.

Now, consider the following for 75% LTV:

• New property price is $1,000,000
• The old property price is $500,000
• Cash downpayment for new property is $50,000
• Non-cash downpayment for the new property is $200,000

How should you proceed?

First, you could pay the $50,000 downpayment in cash. Take a $200,000 bridging loan to cover the non-cash downpayment. The bank loan of $750,000 owing to the 75% LTV could cover the rest of the cost.

If you need money for your downpayment, Horison Credit offers various loans for Singaporeans, permanent foreigners in Singapore. As a licensed money lender, we offer lower interest rates so you can have a more relaxed home ownership journey.

Contact us today at +65 6844 2902 or apply for a loan now.

Frequently Asked Questions

What Are The Alternatives to Bridging Loans?

There are two: the temporary loan scheme and the personal loan.

The temporary loan scheme is a help scheme by the Singaporean government. It assists its citizens in getting a flat without a long-term mortgage plan.

Personal loans can be obtained from banks or licensed money lenders depending on your income and loan history. You need to pay within six months or more. Interest rates vary with the lender.

Can A Bridging Loan Be Used As A Home Loan?

Yes. But we advise using a typical property loan, given that the interest rates with a bridging loan are relatively high. A home loan has a mortgage of around 2%, and a bridging loan has an interest rate of up to 6%.