How Much Is A Bridging Loan In Singapore?
March 28, 2023
As the days of your life unfold, you can upgrade to a new home for various reasons, such as having children. During such times, you can apply for a bridging loan in Singapore to bridge the financial gap as you sell and buy a property.
As a result, you may ask, ‘how much is a bridging loan?’ There is a maximum amount you can take out from a lender. However, several factors, such as your property’s value, can affect the amount you can borrow.
Here is a detailed guide on what a bridging loan is, how much you can borrow, what to consider before applying, and much more.
What Is A Bridging Loan?
A bridging loan is meant to help you when you want to sell your home and buy a new one. It bridges the monetary gap by providing the finances to make necessary payments for your new home. For example, you can use it to clear the downpayment plus other costs as you wait for the sale proceeds of your old property.
Whether you want to upgrade or downgrade, you can apply for a bridging loan in Singapore. Besides, this is a short term loan you need to repay within six months.
You may have heard that there are two types of bridging loans: capitalised interest bridging loans and simultaneous repayment bridging loans. How do they differ?
Capitalised Interest Bridging Loan Vs Simultaneous Repayment Bridging Loan
A capitalised interest bridging loan helps you cover the entire cost of the new property you want. Besides, you will repay it after you sell your old property. As a result, you won’t be servicing two loans simultaneously.
On the other hand, for a simultaneous repayment bridging loan, you will repay it simultaneously with your housing loan.
How Much Is A Bridging Loan?
When you want to apply for a HDB bridging loan, it would be good to know the amount you can borrow. This will help you know the burden you will carry if the sale of your old property fails. Besides, you can plan how you will repay the loan on time.
So how much is a bridging loan in Singapore? You can borrow up to 20% of the new home’s purchase price to pay the non-cash downpayment. However, you can get a loan of up to the net sales proceeds from your old home. This allows you to cover a portion of your housing loan.
However, it is not guaranteed that you will get the maximum amount. The following factors can lower it:
- The value of your property – If your property is of low value, the amount you can borrow will also be low
- Your income – Lenders can look into your income to determine the amount to give you.
- The loans you are paying – Remember, your loans, including the bridging loan, should be at most 55% of your monthly income. Therefore, your bridging loan amount can be affected if you have other loans.
You can get a housing loan calculator in Singapore to help you do the maths. You can use it to find the following figures:
- The amount you can borrow
- Bridging loan interest rate
- The cost of the loan
- The amount you will pay back
What To Know Before Getting A Bridging Loan In Singapore
As you inquire about how much is a bridging loan, there are things you need to know before applying for one. This will help you decide how much to borrow, or is it even a good idea to get this loan?
Here are the things to know:
The Value Of Your Property
Before you even approach a lender to understand what a bridging loan is and whether you can qualify, know the value of your property. Do not overestimate its value because you can have a financial burden later on.
However, do not allow your property to be devalued during the assessment. Understand the state of the real market in Singapore.
The Cost You Will Incur
How much will it cost you to borrow this loan plus your mortgage?
Even though the interest for bridging loans is high, the loan term is short. Therefore, the total interest you will pay is relatively small.
However, the burden to pay the total cost of this loan plus the housing loan depends on your financial capability. Use the housing loan calculator in Singapore to know how much you will incur. This will help you make the right decision.
Loan Tenure And Monthly Installment
Another essential thing to know is the period it takes to repay the loan. Ensure that you have enough time to complete selling your old property.
Also, know the monthly amount you need to pay for your loan. Let the amount be manageable such that you can keep up with the payment if the sale of your property is delayed.
An Option In Case The Sale Of Old Home Fails
When you get a loan, you must abide by the payment terms as agreed with the lender. But what if you do not manage to sell your old property? It would be good to ask your lender about this before getting a loan.
This will help you plan an alternative and know the consequences, such as the penalties you will incur.
Your Property Acts As Collateral
When you want to source a bridging loan from a bank, understand that your home will be the security. If you fail to repay the loan, you may risk losing it to the lender. Therefore, be sure you can service the loan without defaulting before approaching a lender.
How To Use A Bridging Loan To Lower Your LTV Ratio
The LTV ratio is the amount you can borrow to buy a home or a property in Singapore. You can get an LTV of 75% from banks, while HDB offers an LTV of 80%.
You can take out a bridging loan to lower your LTV ratio. Let’s consider this scenario:
You want to sell your old HDB flat at $500,000 and upgrade to a personal property worth $1 million. A bank will allow you to borrow 75%, that is 750,000.
Before you receive the sales proceeds of your old home, you can get a loan to bridge the financial gap for your new home. You can borrow $200,000 to cover the non-cash downpayment, source the remaining $50,000 from your pocket for the cash downpayment, and the bank will give you a home loan worth $750,000.
As a result, you will have $300,000 in excess after selling your old property and paying your bridging loan. With this amount, you can lower your LTV ratio in two ways:
- First, you take out the maximum loan amount allowed, which is $750,000. Then, wait until the prepayment period is over and pay the $300,000 lump sum. This will lower your LTV ratio from 75% to 45%.
- Secondly, you can take a bridging loan worth $500,000 instead of $200,000. As a result, instead of borrowing a housing loan of $750,000 (75%), you take out $450,000 (45%). After you get the sales proceeds of your old home, you repay your bridging loan.
How To Apply For A Bridging Loan
After understanding how much is a bridging loan in Singapore, you can decide to apply for one. Here is how to go about the application process:
Choose A Lender
Do you want to get your loan from a bank or other financial institutions such as licensed money lenders? You can find what different lenders have to offer and compare their packages. Look into factors such as the bridging loan interest rates to get the best deal in the market.
Banks have stricter requirements than licensed money lenders.
Submit The Required Documents
Get the required documents and submit them to your lender. You can do this online through your lender’s official website using your Singpass. For a bridging loan, a lender will require the following:
- Option to Purchase (OTP) document
- Outstanding bank statements
- CPF withdrawal statements
The Amount Of Bridging Loan You Can Borrow In Singapore
‘How much is a bridging loan?’ That can be the question in your mind as you seek financial assistance to cover your new home’s downpayment before you sell your old property.
You can get up to 20% of your new home’s value from lenders in Singapore. You can also borrow up to the net sales proceeds from your old property. However, factors such as your property’s value and outstanding loans can also affect the amount.
If you are looking for a bridging loan in Singapore, search no further because Credit Thirty3 has you. We are licensed financial experts that will offer you a loan with the lowest interest rates in the market. Go to our official website and apply for a loan from the comfort of your home.
Frequently Asked Questions
What Is The Bridging Loan Interest Rate In Singapore?
The bridging loan interest rates are about 5-6% p.a. They vary from one lender to the other.
Where Can I Get A Bridging Loan In Singapore?
You can apply for this loan in banks. Some of the banks in Singapore offering bridging loans include UOB, OCBS, and DBS. You can also get a loan from licensed money lenders such as Credit Thirty3.
Can I Get A Bridging Loan In Singapore With A Bad Credit Score?
Lenders use different eligibility criteria. You may not secure a loan with a bad credit rating from banks. On the other hand, a licensed money lender can assess your financial capability and grant you a loan even with bad credit.