How To Calculate A Bridging Loan In Singapore
January 13, 2023
Upon buying a new property, you might face a time delay between when you get rid of your old property and when you shift into the new one. If you find yourself in this situation, it’s only natural to look for ways to pay your housing costs.
Acquiring a bridging loan can be an excellent way to cover these finances. However, it’s essential to understand how to calculate bridging loan before you apply for it.
This guide will assist you in learning all about bridging loans and the essential details.
What Is A Bridging Loan?
A bridging loan is a short-term loan for those looking for additional funds to purchase a new property before selling an old one.
It allows you to move into the new home even before you finalise the trade of your old property.
Money lenders and banks require repayment of a bridging loan within six months. Consequently, it’s fundamental for you to assess your capacity to pay it off before applying.
How Can A Bridging Loan Help?
Assume that you plan to sell your flat to buy a new condo. You’ll receive the sale earnings in your CPF and in cash after five months.
Also, let’s assume that the selling price of your flat is $400,000, while the condominium’s purchase price is $1,000,000.
As a result, a 25% downpayment and 75% loan-to-value (LTV) ratio on the purchase price will leave you with the following figures.
- Downpayment (5% cash): 5% x $1,000,000 = $50,000
- Downpayment (20% cash and/or CPF funds): 20% x $1,000,000 = $200,000
- Loan amount (assuming you’re eligible for maximum 75% LTV): 75% x $1,000,000 = $750,000
Let’s say that you’ve paid 5% of the downpayment amount and have qualified for a 75% property loan.
Nonetheless, you’ve insufficient funds for the remaining 20% of the downpayment as you’ve yet to finalise the sale of your flat.
A bridging loan in Singapore can help you proceed with the purchase of the condominium by allowing you to borrow $200,000 to make up for the shortfall.
You can repay it once you’ve sold your current flat and received the money.
What To Consider Before Getting A Bridging Loan
Before applying for a bridging loan in Singapore, you must consider the following factors.
Cost Of The Bridging Loan
It’s necessary to compare the total cost of a bridging loan.
You can do so by collecting the details on processing fees, cancellation fees, and other charges levied on loans offered by different lenders.
Subsequently, compare the charges of various banks and money lenders and choose the package with the lowest fee.
Credit Thirty3 offers one of the lowest processing fees among licensed money lenders. It does not have any hidden charges.
Before applying for a bridging loan, you must appropriately assess your financial capacity to repay the loan.
Like the wise say, you should never bite off more than you can chew. Go for a loan tenure that levies bearable interest, which is in sync with your income and savings.
It’s wise to go for shorter loan tenures as long-term loans can become a financial burden.
Generally, money lenders provide more flexible terms than other financial institutions.
Think beyond the bridging loan principal and high interest rate. Check on related costs such as interest repayments, the administrative or processing fee, and late fees or penalties. These fees vary from bank to bank.
State of the Real Estate Market
It would help if you monitored the real estate market before applying for a bridging loan to ensure that your property doesn’t get devalued.
On the other hand, it’s also critical not to overestimate the value of your property.
You can use an online bridging loan calculator to get an idea of the loan amount you’ll need to apply for while taking out a bridging loan. It’ll give an accurate picture of your loan tenure, net loan amount, extra charges, etc.
How To Apply For A Bridging Loan
Applying for a bridging loan in Singapore can be a troublesome process, depending on the financial organisation you choose.
However, money lenders such as Credit Thirty3 simplify the process.
All you need to do is check your eligibility and provide them with the necessary documents, and it’ll take care of the rest. The eligibility and documents required are as follows.
The following individuals are eligible for a bridging loan in Singapore.
- Singapore citizens
- Permanent residents
- Foreigners in the process of selling their property in Singapore
Also, your eligibility is subject to your credit score. A good credit score increases your chances of gaining loan approval.
To kick start your bridging loan application process, you need the below-mentioned documents.
- Option to Purchase (OTP) document
- CPF withdrawal statements
- Outstanding bank loan statements
Fees And Charges
Depending on the financial institution you resort to, taking out a bridging loan can incur a few extra charges. Usually, there are two types of fees levied by money lenders and banks.
- Processing fees: These fees vary from one lender to another and commonly lie in the range of 1-5%.
- Late payment fee: Although not levied by all money lenders, these fees range between 3-5%.
Note: Most banks and money lenders offer a 15-day grace period before charging a late payment fee on the monthly instalment of bridging loans.
Money lenders in Singapore like Credit Thirty3 believe in reducing the predominant financial burden on loan takers by charging reasonable fees.
How To Calculate Bridging Loan
The amount you can borrow with a bridging loan depends on the value of your property.
Since you’re using it for your downpayment, you’re entitled to borrow 20% of the property value in most cases.
However, you may be able to borrow more from a bank or money lender if you can prove that you’ll have sufficient money from the sale proceeds.
Let’s say you’re selling your current property for $1,250,000 and buying a home worth $1 million. The downpayment for the new home will be $200,000.
You can use the proceeds from the sale of your current property to pay off the bridging loan and have $50,000 left over.
Since you made enough profit, you’ll have enough money to pay back the loan.
In this instance, some lenders may go beyond the 20% borrowing limit, if you have a stable job, good credit score on top of a profitable sale.
Learn How To Calculate Bridging Loan
Due to the consistent rise in the cost of living, it’s tough to survive on a monthly income. As a result, you might need a loan to fulfil your financial responsibilities while selling an old property and moving into a new one.
Either way, with a drastic increase in money lending scams, it’s crucial to explore your options and scrutinise them now that you know how to calculate bridging loan.