A bridging loan is a short-term loan that stands in to help you secure a property before you can sell your previous property. In short, it’s a bridge between transactions.
Most financial institutions in Singapore issue bridging loans against collateral. The loan tenure is about six months for most banks. However, if you secure a loan with a money lender, you don’t need to worry about collateral, but be sure that the interest rate is higher than the banks.
Private residential property estimates show that they may increase by 3.4% quarter on quarter. This follows previous estimates of resale flat prices increasing 2.4%.
How Does a Bridging Loan Work in Singapore
Let’s say you want to sell your existing HDB to purchase a condominium, but you will receive the sale proceeds from your previous property after four months.
| Cash Downpayment (5%) | 5%*$1,500,000 | $75,000 |
| Non-cash downpayment/CPF funds (20%) | 20%*$1,500,000 | $300,000 |
| Loan Amount (75%) | 75%*$1,500,000 | $1,125,000 |
| Condominium purchase price | – | $1,500,000 |
You’d have to make cash and non-cash down payments to secure the condominium. However, if you do not have sufficient non-cash downpayment in your CPF, you can secure a bridging loan of $300,000 from a bank as long as the sale proceeds of your old property are above $300,000.
Types of Bridging Loans in Singapore
There are two types of bridging loans, and they include:
Capitalised Interest Bridging Loan
This type of loan covers the cost of the property you want to purchase. And the loan repayments start only after you’ve sold your property.
Capitalised interest bridging loan is best if you don’t want to be burdened by loans as it prevents you from paying two loans simultaneously. This means you will only pay for your current home loan and repay the bridge loan after closing your current home.
Simultaneous repayment bridging loan
Unlike capitalized interest bridging loans, with simultaneous payment bridging loans, you are supposed to start repayments as soon as possible. This means you’ll be paying your current home loan and the bridging loan simultaneously.
Note: Licensed moneylenders do not offer simultaneous bridging loans. Find out more on our guide on licensed moneylender in Singapore
What are the Top Uses of a Bridging Loan?
Although bridging loans for home purchases, they are not restricted to other uses. Let’s find out how you can use a bridge loan.
- Purchasing a property that’s being auctioned.
- Make quick home purchases at a bargain
- Solve cash flow problems in your business venture
- Start a new business
- Finance property refurbishment
- Re-bridging
- Preserve your savings
- Home upgrade
- Prevent property repossession
- Pay up your divorce settlement
- Pay a tax bill to avoid penalties
- Purchase a property with a short lease
- Property development
- Upgraders use it to maintain a place in the sale chain
Benefits and Drawbacks of Taking a Bridging Loan
Pros
- They are fast to access because of the short processing time
- Flexibility
- Gives you a stronger position in negotiating a purchase
- It can be used to refurbish properties in poor condition
- Multi-purpose loan
What are the Risks of a Bridging Loan?
- It’s a short-term loan
- Payments may be higher if payments fall through
- They attract high-interest rates compared to home loans
- You will have a heavy financial burden if you opt for a simultaneous repayment bridging loan. This is because you must simultaneously repay two loans (bridging loan and mortgage repayments)
What to Consider When Taking Out a Bridging Loan?
When taking out a bridging loan, consider the following.
Loan Tenure
Bridging loans are short-term loans. Although taking a bridging loan with a long tenure is wise, you’ll pay more because of the high interest rate.
Therefore, when taking out a loan, be aware of the loan amount and the interest, and ensure you can pay it back within the stipulated time.
Interest rate
Bridging loans attract a high-interest rate. Therefore, you must pay it within the stipulated time; otherwise, you risk having to pay an enormous amount in penalties if you default on your payments.
Therefore, do your research before settling for a lender.
Loan Repayments
A bridging loan is repaid every month. Therefore, before taking out a loan, sit down and calculate to see if you can manage to make the repayments.
Ensure your income can cover the loan and interest as you wait to sell your property. And always pay on time each month because if you let them accrue, it will be challenging to pay your loan.
Risk
When taking out a bridging loan, be aware of the risk involved. For instance, banks use your property as collateral, so if you fail to pay within the stipulated timeline, you risk your property being auctioned.
And if you secure your loan with a moneylender, you should be aware of the short repayment timeframes.
Top Bridging Loans Providers in Singapore
| Top lending institutions | Interest rates | Loan tenure | Loan amount | Collateral | Property type | Good Credit score |
| Maybank | 1.33% to 1.60% | 1- 4 years | Depends on the value of the property | Yes | HDB | yes |
| UOB | 4-5% per year | Up to six months | Depends on the value of the property | Yes | HDB | Yes |
| DBS | Prime rate | Up to six months | Depends on the value of the property | Yes | All property | Ye |
| Standard Chartered Bank of Singapore | 2% per year plus 3 months SIBOR | Up to six months | Depends on the value of the property | Yes | HDB | Yes |
| Moneylender | 1-4% per month | One month until the property completion date | 6 times your salary | No | All property types | Not required |
The maximum amount of bridging loan you can borrow from a bank is limited by the value of your collateral and credit score. And the typical interest rate ranges between 5% to 6%. Besides, you must make monthly repayments for 6 months.
However, with a moneylender, the maximum amount is 6 times your salary, and the interest rate ranges between 1% to 4% per month. You must repay the loan within a month or until you get the property sale proceeds.
Why a moneylender is a good option
Taking out a loan with a moneylender is a good option because they do not need to look at your credit. Besides, you do not need any collateral to get a loan as they extend unsecured loans. Their loan processing period is fast, meaning you’ll have the funds fast with 24-hour licensed money lenders.
How to Apply
Bridging loan is a financial product offered by many financial institutions in Singapore. And if you want to apply, here is a step-by-step process.
1. Compare bridging loan packages from various lenders
Get at least 3 quotes from different financial institutions, including banks and moneylenders
2. Find your ideal lender
After you’ve compared different lenders, evaluate your financial situation and goals and use that to select the best fit.
3. Ensure you meet all the requirements, and this includes:
Banks
- Above 21 years
- Singaporean citizen, Permanent resident of Singapore
- Good credit score
- Latest CPF (central provident fund) withdrawal statement
- Bank loan statements
- Option to Purchase (OTP)
- Have a stable income
- Provide documentation supporting your citizenship, residence, income, and employment
Moneylenders
- Above 18 years
- Singaporean citizen, Permanent resident of Singapore
- Singpass
- Proof of residence, income, and employment
- Copy of Option of Purchase(OTP) document
4. Submit your bridging loan application to your chosen lender and double-check to ensure you’ve filled all the sections correctly.
5. Get your cash as soon as you sign the loan contract.
FAQs
1. What is the maximum amount you can borrow with a bridging loan?
The amount of bridging loan you can borrow with a bank is determined by the value of your collateral and credit score. On the other hand, the moneylender usually extends a loan that is up to 6 times your monthly income.
2. Can you use a bridging loan to lower your LTV ratio?
When purchasing a new house, consider a scenario where:
- New property purchase price: $1,000,000
- Maximum Loan amount: $750,000
- Non-cash down payment: $200,00
- Sale proceeds from the old property: $500,000
You are looking to purchase your next property, but the sales proceeds of the current home are yet to be received, and the seller of your new property needs to be paid.
In this case, you will need to take a bridging loan to finance a non-cash downpayment of $200,000 and add the $50,000 to your funds. And the bank loan will finance the remaining $750,000.
After you receive the sale proceeds and pay off your bridging loan, you will have an excess of $300,000, which you can use to finance a new property.
Alternatively, you can take a bridging loan of $500,000, meaning you will only need a home loan of $450,000. But note that you will incur a higher interest rate because of the increased loan amount.
3. Can you use CPF to pay off a bridging loan?
Yes. Many people use CPF to pay off their bridging loans as CPF has a lower interest rate. However, ensure that you have adequate CPF funds for the downpayment, which is not usually the case for many.
Summary
Bridging loans are lifesavers for homeowners and property upgraders, especially when they don’t have sufficient cash for home purchases or are experiencing delays in selling their private property. However, before securing a bridge loan, beware of the short period and high-interest rates required to repay the loan.
- Banks offer bridging loans, provided you have a good credit score. And you are required to pay the loan within 6 months.
- A bridging loan and mortgages are different in that a bridging loan can be put to several uses while a mortgage is specifically for a home purchase.
- Moneylenders are the best alternative for bridging loans as they have a fast processing time, do not need collateral, and have no credit score requirements.
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