Thinking of upgrading your HDB flat to a bigger one? You’re not the only one. As your family grows and your needs change, it’s only natural to want to uproot and look for a new property – whether it’s a bigger HDB flat, an Executive Condominium, or a private property.
Unfortunately, selling your old property to buy a new one is easier planned than done. So what happens if you need to pay for the new down payment but your funds are tied to your old property?
If you need help financing your next property purchase, a bridging loan will help make up for the shortfall. This is a type of short-term loan designed to tide you over until you receive the sales proceeds of your old home.
What is a bridging loan?
As the name suggests, a bridging loan is intended for those who need to pay the down payment for a new property prior to getting the sale proceeds from their current property. It bridges that gap financially, ensuring a smoother transition to your new home.
The maximum amount will be based on the net proceeds and CPF balances from the approved sale of the old property.
Interest rates are generally from a 5% to 6% range per annum depending on the bank where it was loaned from.
All bridging loans should be settled not later than 6 months.
Types of Bridging Loan
Note that this article covers property bridging loans which help homeowners sell their old property and buy a new one. Do not confuse this loan with the Temporary Bridging Loan Programme (TBLP) which is a government scheme to help business owners gain access to working capital.
That said, there are two main types of bridging loans on the market – Capitalised Interest Bridging Loan and Simultaneous Payment Bridging Loan.
Capitalised interest bridging loan
In this type of bridging loan, your financial institution of choice will primarily pay for the new house. Once your sale of the old property has been completed, that is the only time you will start making repayments. However, note that interest rates accumulate depending on the loan tenure in this type of bridging loan.
Simultaneous repayment bridging loan
Through this type of bridging loan, financial institutions will give you a certain time frame only up to when you can sell your old property. Simultaneously, you will be paying off the loan for the bridging loan and the home loan. Prior to applying for the loan, you will be required to present your option to purchase documents and, in some cases, documents that show you have already sold your old property.
How does it work?
To paint a more precise scenario, you are expecting a new family member, and the medical bills of pregnancy already have your hands full. Thinking ahead, your family would need a bigger home. Plus, the transition from an HDB flat to a S$1,000,000 new condominium unit will require down payments.
5% x S$1,000,000 = S$50,000
20% x S$1,000,000 = S$200,000
75% x S$1,000,000 = S$750,000
Even if you have already paid the 5% initial down payment, you would still need to pay the 20% down payment. In this event, you can get a bridging loan of S$200,000 in order to make up for the 20% down payment to which you can cover once your sales proceeds from your old HDB flat push through.
When to take a bridging loan?
There are numerous scenarios on when you will need to get a bridging loan. Some of which are listed below. But regardless of which, the main thought still remains – you need this loan to bridge the gap between two properties financially.
- Upgrading your property
This type of scenario is what most likely happens with owners who are getting a bridging loan. Moving to a better home for yourself or a new family member.
- Selling your newly renovated property
In these cases, you might have used up several amounts of your cash reserves to revamp your old property and thus sell it for a much higher price. But at the cost of which you might have a hard time paying down payments for the new home – this is where you can apply for a bridging loan.
- En bloc sale
Rarely do you get a chance for your property to be sold as a part of an En Bloc Sale, to which you would need to find a new property to live in quickly. In this scenario, you can also apply for a bridging loan to cope with the sudden changes.
Best bridging loans in Singapore 2022
There are several banks that offer bridging loans, and rates, property types, and tenure differ each their own. Here is a quick guide on where you can get the best deal for your next bridging loan.
|UOB HDB Home Loan||DBS Bridging Loan||Maybank HDB Home Loan||Standard Chartered HDB Bridging Loan|
|Property Type||HDB||All property types||HDB||HDB|
|Interest Rates||4% to 5%||Prime Rate||1.33% to 1.60%||3 months Sibor + 2% annual interest|
|Loan Tenure||Up to 6 months||Up to 6 months||From 1 to 4 years||Up to 6 months|
Looking at this bridging loan table, you can more or less get an idea on where to get your loan proceeds depending on your needs and flexibility. If you are looking for a low-interest rate that can span longer than other banks, you can opt for the HDB Home Loan of Maybank, where you can get a loan tenure of up to 4 years.
On the flip side, Maybank, with all its long tenure for repayment, is only available for HDB flats. If you are looking for a more flexible loan, you might want to consider the DBS bridging loan that is open to all property types with prime rate payables in terms of interest.
Tips for applying for a bridging loan
Just like other home loans, bridging loan packages are not made equal. Here are a few factors you should consider when applying for a bridge loan.
Determine the exact amount you’ll need. Higher loan amounts would eventually expose you to a whole new level of risks. If you can’t handle the repayments, you will end up in a lot more trouble financially than you intended.
High-interest rates would mean a larger amount payable every month, making it quite impossible to save extra cash in the process. Banks offer bridging loans with higher interest rates than home loans. As such, you can expect interest rates to range between 5% and 6% p.a.
Monthly loan repayments
If you’re taking up a bridging loan from banks, you have the option to either repay the loan after your old property is sold or to simultaneously pay off your bridge loan and home loan. Determine whether you can afford the loan repayment on top of the mortgage of your new property.
Bridging loans are short-term loans with high interest rates. Although the tenure may vary depending on the bank, you typically only have up to 6 months to repay the loan. That said, carefully compare interest rates since a short tenure can lead to higher monthly loan repayments.
Alternatives to bridging loan
Not sure whether you can take on the very short loan tenure of a bridge loan? Don’t fret! There are other options you can consider.
These alternatives can provide you with the financing you need to facilitate your new property purchase. Plus, these options are not limited to paying off your home down payment. You can also use the funds for other expenses and costs that come with a property purchase transaction.
Home Equity Line of Credit (HELOC) is one way of upgrading into a new home despite not having a buyer for the one you will leave behind. It can come off with a lump sum of cash and a fixed interest rate that can be used to pay off your down payment for the new house.
You can take up an unsecured personal loan from banks or from licensed money lenders in Singapore. Unsecured personal loans will have different caps on loan amounts depending on the financial institution.
For instance, if you’re borrowing from a licensed money lender in Singapore, you can borrow up to 6x your monthly salary depending on several factors, such as your income.
Bridging Loan with Moneylenders
Having your loan with moneylenders is another safe option as all licensed moneylenders are governed by the Ministry of Law Singapore. With licensed moneylenders, you will be able to get unsecured bridging loans up to 6x your monthly income. As for interest rates, licensed moneylenders only impose 1-4%.
Frequently Asked Questions
How long does it take for the bridging loan application to get approved?
For banks, the earliest it would take would be at least a whole business day, while with moneylenders, your application can be approved within 30 minutes.
How much can be borrowed with bridging loans?
In general, you can get up to 20% of the down payment or its non-cash portions with bank loans. In some cases, you can get an even amount of the net sale proceeds from your old property.
What is the difference between a bridging loan and a term loan?
The two have similarities in terms of loan tenure and interest rates. However, the main difference would be that bridging loans will always have a reliable repayment source as it will primarily come from the sale of your old property to bridge the finances.
What is the interest rate on bridging loans?
Interest rates on bridging loans will depend if you will get them from banks or moneylenders. With banks, it would typically range from prime rates to as high as 6%. On the other hand, licensed moneylenders are capped at a 4% interest rate.
Can I get a bridging loan with bad credit?
The short answer would be yes, but banks would require collateral for the loan. Moneylenders, on the other hand, do not really need credit scores, but it would help if you have a good credit rating.
Bridging loans are the perfect way to go when you plan to upgrade to a new home without incurring a one-off financial burden for down payments. Secured repayment source from the sale of your property, you can lessen the risk of additional interest rates to ensure a smoother transition to your new property.
- A bridging loan is a short-term loan designed to tide you over until you receive the net sales proceeds of your old home.
- Banks offer bridging loans with higher interest rates than home loans. Bridging loan interest rates can range between 5% and 6% p.a.
- There are a few factors you need to consider when applying for a bridge loan, such as the loan tenure, interest rates, loan amount, and monthly repayments.
In need of additional funds for a sudden needed down payment for the new property? Sometimes, transacting with banks requires loads of paperwork and requirements. For a quick borrowing process, get your bridging loan with 1 Fullerton Credit and get your application approved in minutes!