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How To Apply For A Executive Condominium (EC) Bridging Loan
August 8, 2022
Are you looking for an executive condominium (EC)? If so, you can consider applying for a bridging loan.
An EC bridging loan can help you secure your dream home before your current property is sold. This way, you don’t have to wait for the sale to go through before buying your new home.
Credit Thirty3’s interest rates are some of the lowest in the market – so you can rest assured you’re getting a great deal.
Learn more about the EC bridging loan and get one step closer to owning your dream home.
What Is A Bridging Loan?
A bridging loan is a type of short-term loan that helps you bridge the gap between purchasing your new home and selling your current property.
This temporary loan essentially allows you to buy your new home before selling your old one, so you don’t have to wait for your current residence to be sold before purchasing a new abode.
This can be an ideal solution as it means you don’t have to wait for the sale to go through before moving to your new home.
How Does A Bridging Loan Work?
The loan is secured against your current property, which serves as collateral. Therefore, if you cannot sell your property, the lender can take possession of it and sell it to recoup its losses.
However, this is usually the last resort. The consultants at Credit Thirty3 will work with you to find a solution that best suits your needs.
What Are The Benefits Of An EC Bridging Loan?
An EC bridging loan enables you to buy a new home before receiving the sales proceeds from the apartment you are selling.
This means you can seize market opportunities in real time and move to your dream home more quickly.
How Can I Use A Bridging Loan To Purchase An EC In Singapore?
Firstly, what is an EC?
An EC is a type of housing in Singapore that is similar to a private condominium but has some key differences. Think of it as subsidised government housing with the benefit of condominium facilities.
- ECs are only available to specific applicants such as Singapore citizens who are married or have a family.
- ECs have certain restrictions on resale and ownership, making them a popular choice for first-time homebuyers.
Despite these restrictions, most ECs offer similar amenities and benefits as private condos such as swimming pools, gyms, and function rooms.
So an EC might be the perfect option if you’re looking for a larger place (that is cheaper than a private condo) to call home.
Here’s how you can leverage a bridging loan to buy an EC in Singapore:
| The HDB apartment you’re selling | |
|---|---|
| Market value (according to your bank’s assessment) | $500,000 |
| Recognised market value (80%) | $400,000 |
| Subtract: Your remaining loan | $100,000 |
| Less: CPF used + cumulated interest | $250,000 |
| Cash proceeds | $50,000 |
| Total sales proceeds (cash + CPF) | $300,000 |
| The EC you’re buying | |
|---|---|
| Purchase price | $1,000,000 |
| Eligible bank loan (your LTV is capped at 55% because you already have another mortgage loan) | $550,000 |
| 5% cash payment | $50,000 |
| 15% cash or CPF | $150,000 |
| 5% cash or CPF | $50,000 |
| 20% bridging loan (you’ll receive this during TOP) | $200,000 |
| 40% bank loan (you’ll receive this during TOP) | $400,000 |
| 15% bank loan (you’ll receive this upon CSC) | $150,000 |
How Will An EC Bridging Loan Lower My LTV Ratio?
Another advantage of using a bridging loan to buy an EC in Singapore is that it can lower your LTV ratio.
What Does a LTV Ratio Mean?
The loan-to-value (LTV) ratio is the percentage of the property value financed by the loan. A higher LTV ratio means you are borrowing more money and therefore have a higher risk of defaulting on the loan.
A bridging loan can lower your LTV ratio by providing the funds required for the property downpayment. This financial assistance will reduce the loan amount and consequently, your LTV ratio.
Is it the best solution?
Let’s say you’re waiting for $650,000 worth of sales proceeds from your old property. You’re also looking to purchase a $1,000,000 EC.
Your current LTV is 60%, meaning the bank will cover $600,000. You have to come up with the remaining $400,000.
Now imagine taking up a $400,000 bridging loan to cover this amount.
After your sales proceeds come in and you repay this loan, you have $250,000 left in your account. So one option is to use this sum to pay part of the $600,000 loan you got from the bank.
Of course, you’ll have to pay some penalty fees in this case, which may reach up to 1.5% of the $250,000.
The other alternative is taking up a higher bridging loan from the start.
Let’s say you’re borrowing $650,000 – the exact value of your sales proceeds. Then, you can use the entire sum as a cash advance and only borrow $350,000 from the start.
That way, you won’t have to deal with the penalty fees, though you will have to pay an interest rate of 5 to 6% of the borrowed sum.
So which option is best?
Let’s do the math.
First case scenario ($15,750):
- You borrow $400,000 at 6% interest p.a. That means $12,000 interest in total.
- You pay 1.5% of $250,000 in penalty fees, meaning $3,750.
Second case scenario ($19,500):
- You borrow $650,000 at 6% interest per annum. That means $19,500 total interest.
As you can see, the first case scenario offers you a cheaper way to lower your loan-to-value limit.
How Much Can I Borrow For My EC Bridging Loan?
The amount that you can borrow will depend on several factors, including:
- The value of your current property
- Your income
- Your debts
- Your CPF funds
However, Singaporeans usually borrow enough to cover their advance downpayment. You can take a bridging loan to account for the difference if you already have a portion of that advance payment in cash.
Warning: Sometimes, bridging loans have risks.
For example, if you’re using your current property as collateral, you might lose your home if you default on the loan.
Hence, it’s essential to do your research and understand all the risks involved before taking out a bridging loan. You should also speak to a financial advisor to get professional advice.
Your first property’s sale might also fall through.
If this happens, you’ll still have to pay back the loan even though you don’t have the sales proceeds. So it is crucial to make sure you can afford the repayments before taking out a bridging loan.
Here’s how to do that:
- Calculate the total amount you need to borrow, including the downpayment, closing costs, and other fees.
- Make sure that you have a solid plan in place for selling your current property. This strategy will give you an idea of when you’ll have the money to repay the loan.
- Consider a Plan B, such as:
- Renting your old apartment until you can secure another buyer
- Using your CPF funds to pay for the bridging loan
Conclusion
An EC bridging loan can help you to purchase an executive condo by lowering your LTV ratio. However, there are some risks involved that you should be aware of before taking out a loan. Do your research and speak to a financial advisor to get professional advice.
Credit Thirty3 is here to help you. Our expert staff can customise the most convenient financial solutions for your needs. Applying with us is easy and can save you weeks of hassle.
Get your quote here.
