How Long Does It Take To Get A Bridging Loan?
January 3, 2023
Many homebuyers are always looking for a home and a mortgage. Homeownership is no easy journey, especially when you are busy trying to sell your current home and buy a new one.
In such instances, a bridging loan, or bridge loan, may be the best option for you. A bridging loan is a short-term loan you can use to foot the downpayment of your next property, without having to wait for your long-term mortgage to go through.
So to answer the question: How long does it take to get a bridging loan? We will have a look at factors that affect how long it takes for your bridging loan to be approved.
How Does A Bridging Loan Work?
Wondering what is a bridging loan in Singapore? Bridging loans are designed to help you get through a short-term cash crunch.
They’re usually used to bridge the gap between selling your home and buying a new place, or as a way to fund renovations until you’ve sold your property.
Upon your bridging loan approval, the bank granting you the bridging loan will handle all the financing needed to purchase your property. In addition, it will take charge of the existing mortgage loan.
From this point, you will start remitting your monthly repayments on your bridging loan in Singapore that are interest-only payable over a period of six months.
The payment, referred to as peak debt, consists of your existing loan balance, price of the new home, legal fees, stamp duty, and other capitalised interest that you have to pay till your property is sold.
When your old property is sold, the peak debt converts to an end debt, after which your bridging loan is treated like an ordinary home loan.
How Long Does It Take To Get A Bridging Loan?
There are many factors that may influence the time it takes for you to get a bridging loan.
Bridging loans are designed to bridge the gap between purchasing a new home and selling your old one.
They are also used to cover costs while you try to sell your current property, or they can be used to buy another property when you’re unable to sell your existing one quickly enough.
So how long does it take to get a bridging loan?
This depends on a number of factors, including how long it takes to sell your current home, how quickly the lender can process your application, and how much it costs to make all the necessary arrangements before issuing funds.
Types Of Bridging Loans
There are two different types of bridging loans in Singapore: capitalised interest and simultaneous repayment. If you’re unsure which one is best for your situation, read on to find out more.
1. Capitalised Interest
This type of bridging loan is where the bank covers your entire purchase of a new property. The cushioning loan helps you start repaying your mortgage loan after the old home is sold.
Capitalised interest loan is the best option if you don’t want to service different loans at one go.
2. Simultaneous Repayment Bridging Loan
As suggested by the term “simultaneous”, this bridging loan allows you to repay off your new property home loan and bridging loan at the same time.
When you take this loan, you’ll be given 12 months to sell your property and start repaying your loan.
However, Singapore bridging loans have a six-month repayment period. So you need to ask yourself if going the bridging loan way is important to you at the given time.
You should also decide if you are borrowing to pay only for a property downpayment or to factor in a portion of the home loan too.
What To Consider Before Getting A Bridging Loan
Getting a bridging loan is a common practice for Singaporeans in need of money to pay for an urgent expense. However, it can be quite daunting to decide whether or not you should opt for a bridging loan.
Here are five things you need to consider before getting a bridging loan:
1. Interest Rates
The first thing you need to look at when deciding whether to get a bridging loan is the interest rate.
If you compare bridging loan interest rates to standard home loans, you’ll see that bridging loans are much more expensive. Bridging loans have high interest rates, with their bank rates ranging from 5-6% per annum.
The higher the interest rate, the more expensive your monthly repayments will be, and vice versa. So make sure that you compare different lenders and find one with reasonable rates before signing up for any loan agreement.
Besides, you’ll have the option of paying the interest first, so you can pay the loan later after collecting the sales proceeds from your old home.
2. Monthly Repayments
You need to consider how much money you can afford to pay each month towards your monthly repayments.
If the repayment amount is too large for you to afford, consider reducing it. You can do this by finding ways to cut down on some of your expenses or increasing your income if possible.
You should also consider whether there are any other loans that could be consolidated into this one so that there is only one monthly payment instead of multiple ones.
3. Loan Amount
When it comes to bridging loans, it can only finance 25% of your new property’s purchase price. But it doesn’t mean you can borrow much without a repayment plan.
Ensure you only borrow the amount you need considering the short loan tenure and high interest rates. It’s wise to take a bridging loan to cover your downpayment and close the property transaction for your new home.
4. Loan Tenure
The loan tenure determines how long you have to repay the loan. It can range from one month to one year but most lenders in Singapore offer bridging loans with a loan tenure of six months.
You need to take careful consideration of the amount you’re borrowing. The loan tenure and high interest rates may rack up your monthly loan repayments.
Some lenders may allow you to extend your repayment period if necessary, but this will incur additional fees and interest charges. So be sure to check what conditions apply before going down that road.
Bridging loans are considered to be slightly riskier than traditional home loans.
They tend to be more expensive due to higher interest rates on offers from lenders willing to lend money at short notice or under less-than-ideal circumstances such as during times of financial difficulty.
In case your old property fails to get sold, ask your bank for exit clauses to cushion you against penalties that may accrue because of the bridging loan.
Remember that the terms and conditions of this loan vary from one bank to the other. Be clear about the risks you’re getting into before committing to a bridging loan.
How To Lower Your LTV Ratio Using A Bridging Loan
Many banks and financial institutions in Singapore use loan-to-value (LTV) criteria to determine if they can approve your home loan. Having a lower LTV ratio helps you save some amount of money in the course of your property or home loans as you borrow less.
If you’re looking to lower your LTV ratio and get a bridging loan, there are a few things you can do. Here’s how:
1. Get A Guarantor
When you apply for a bridging loan, it’s likely that the lender will look at your income and employment status. If you have a guarantor who is willing to sign on as an additional borrower and guarantee the loan, this can help increase your chances of getting approved.
2. Increase Your Deposit Amount
If you want to lower your LTV ratio when applying for a bridging loan, try increasing the amount of money in your deposit account by making regular payments towards it each month.
This will show lenders that you’re serious about making payments on time and keeping up with payments even if unexpected costs arise such as medical emergencies.
Pros And Cons Of A Bridging Loan
1. Fast Approval
A bridging loan is a short-term loan that can be used to cover the gap between selling your property and buying a new one.
This means you can get a bridging loan in as little as 24 hours and have the money you need in your account quickly. Compared to other loans, it’s the fastest with an approval time of 24 to 48 hours.
Some licensed money lenders and institutions grant loans even within an hour.
2. Generous Loan Amount
Bridging loans are available for higher amounts as the loan has your property pledged as the collateral.
So if you’re buying a multi-million property, there should be enough to cover the costs associated with moving house and buying another one.
3. Lots Of Flexibility
Bridging loans come with lots of flexibility given they have fixed and variable interest rates.
1. Relatively High Risk
Bridging loans are relatively risky because of their secured nature. In case you default on paying your loan, chances are you may lose your property.
2. Higher Interest Rates
Bridging loans are more expensive than other short-term loan options such as payday loans or cash advances from credit cards.
The loans are usually not available from banks or credit unions – instead, they’re offered by private lenders who charge higher interest rates than traditional lenders.
3. Fees And Charges
Bridging loans can prove to be expensive with the arrangement fees, exit fees, and other expenses that you may need to repay when you take a loan.
How To Apply For A Bridging Loan
1. Check Out The Market
One way to find the right lender for your situation is by comparing what is available in the market. You can use this technique to search for different lenders and get an idea of what type of rates they offer.
2. Find Your Perfect Bridging Loan
After comparing the market, carefully analyse your goals and financial needs to get a product that fulfils your needs.
3. Ensure You Meet the Eligibility Criteria
Once you’ve found a lender that meets your needs, it’s time to make sure you meet their eligibility requirements. This means that you’ll need to make sure that you meet all its criteria before applying for a bridging loan.
For example, some lenders require borrowers to have a minimum income level or credit score in order to qualify for a loan.
Be sure to check with each lender individually before applying for one because they may have different requirements than others do.
4. Submit Your Bridging Loan Application
Once you’ve determined whether you qualify, then all that’s left is to submit an application form online or in person. Submit any other documentation requested by the lender such as proof of income and proof of identification.
5. Receive Your Bridge Loan Funds
Depending on your money lender or bank, you will receive your bridging loan disbursement in 24 to 48 hours.
Decide If You Need A Bridging Loan
So now you know how long does it take to get a bridging loan. The loan, a short-term financial boost to be used until you qualify for the mortgage, usually has a 24- to 48-hour approval time.
If you have to use a bridging loan, you should not overstretch and should keep to your limits. Just remember to pay it off quickly so that you don’t lose money paying the loan.
Contact Credit Thirty3 today to learn more about bridging loans. We are one of the most trusted licensed money lenders in Singapore, offering some of the most affordable interest rates and fees.