Maybe you want to upgrade your property and have put your current home on sale. While waiting to receive the sales proceeds from your old property, you chance upon a new property you like.
But when it’s time to make a downpayment, you realise you can’t afford it… yet. Why? Because the sales proceeds of your old home are not in yet.
The big question is: Are you going to miss out on your dream home because you can’t afford it now? Well, you don’t have to.
Scenarios like this are why banks and licensed money lenders offer bridging loans. With a bridging loan, you can pay for your new home and pay back what you owe when you receive proceeds from the sale of your current property. But how long does it take to get a bridging loan?
But what is a bridging loan? How does it work? Find out how long does it take to get a bridging loan and if it will be approved in time to pay for your new home in this article.
How Does A Bridging Loan Work?
So what is a bridging loan in Singapore? As the name suggests, a bridging loan helps to bridge the gap between the time it takes to get the proceeds from your old property’s sale and putting in a downpayment for your new home.
In Singapore, selling your property and getting the proceeds can take some time. This puts you in a tight spot if you need money to buy a new property.
But with a bridging loan, homeowners who wish to upgrade their flats can get the financing they need to acquire a new property.
Bridging loans allow you to borrow 15-20% of your new property’s purchase price. The interest rate for this type of loan is usually between 5-6% per annum, and the loan tenure is generally between six months and one year.
While its interest rate is high, a bridging loan offers some flexibility. You’re allowed to service only the interest during the loan tenure. This means you’ll only have to pay the principal amount when you receive proceeds from the sale of your old property.
How Long Does It Take To Get A Bridging Loan?
Now that you know how a bridging loan works, how long does it take to get a bridging loan? Well, not long.
The whole idea of a bridging loan is getting a quick fix to acquire a new property while you wait to earn money from a property sale. Also, bridging loans are a type of short-term financing. These loans don’t take a lot of time before they’re approved.
Hence, you can get your bridging loan approved between 24 and 48 hours. Sometimes, this time frame could be shorter.
Some licensed money lenders can approve your bridging loan request within an hour. This is even shorter than most short-term loans.
Types Of Bridging Loans
There are two basic types of bridging loans in Singapore. They are:
Capitalised Interest Bridging Loan
If you opt for a capitalised interest bridging loan, your lender will cover the entire cost of your new property. You start to repay your bridging loan only when your old home has been sold.
With this option, you don’t have to worry about paying for your mortgage loan and bridging loan at the same time. When your old property is sold, you can pay off the principal amount and accrued interest.
Simultaneous Repayment Bridging Loan
If you’re taking a simultaneous repayment bridging loan, you’re required to pay your bridging loan and mortgage loan at the same time.
It’s the direct opposite of a capitalised interest bridging loan. If you’re currently struggling with your finances, this option might not be ideal.
What To Consider Before Getting A Bridging Loan
Here are a few things to keep in mind before choosing to apply for a bridging loan in Singapore.
What Are The Exit Clauses?
Since nothing is guaranteed and things often go wrong, there’s a chance your property sale may fall through. To protect themselves, financial institutions usually put clauses detailing the penalties that you’ll have to pay if that happens.
These clauses vary from one lender to the other. So before applying for a bridging loan, find out about the lender’s exit clauses. If it’s too harsh, it’s best to try another option.
How Much Cash Do You Already Have?
Before taking a bridging loan, consider whether you have enough savings on hand to make a downpayment for your new home. You can also pay for your new property using money from your CPF Ordinary Account (OA).
Bridging loans should only be considered when you have no other way to cover the downpayment for your new home. This is because their interest rates are usually higher than other types of housing loans.
Can You Afford A Bridging Loan?
Bridging loans usually have a loan tenure of six months. Within these six months, you’re expected to make monthly repayments and pay interest.
Hence, it’s important to consider whether you can cover the total cost of a bridging loan within such a short period.
How To Lower Your LTV Ratio Using A Bridging Loan
The loan-to-value (LTV) ratio is the percentage of the property value you get as a loan. If a property costs $1,000,000 and you get a loan amount of $800,000 from a bank, the LTV ratio of your property loan is 80%.
Lenders prefer a lower LTV ratio as it translates to less risks for them. With a low LTV ratio, your loan has a higher chance of being approved. You also get to pay off a lower amount.
To lower the amount you borrow, you can use a bridging loan to lower your LTV ratio. Consider the following parameters:
New property = $2,000,000
Maximum loan quantum = $1,500,000 (i.e. 75% LTV)
Non-cash downpayment = $400,000
Total net sales from old property = $1,000,000
In this case, you’ve yet to receive the proceeds from your old property sales, and you take a bridging loan of $400,000 to cover non-cash downpayment.
You also add $100,000 of your own to cover the cash downpayment. A bank mortgage loan will cover the remaining maximum loan quantum ($1,500,000).
But when you pay your bridging loan with sale proceeds from your old property, you’ll still have a balance of $600,000 from your property sales.
What do you do with the remaining money? Can you also put it into your new property? In this case, you have two main options.
For the first option, you can take the maximum loan quantum of $1,500,000 and pay the $400,000 when the repayment penalty period is over.
In the second option, you can increase the bridging loan quantum to $1,000,000. This way, you’ll only need to take a home loan of $900,000 (45%.) When you receive the downpayment from your old property’s sale, you can repay the bridging loan. You would also have successfully lowered your LTV ratio from 75% to 45%.
How To Apply
Follow these four steps to apply for a bridging loan.
- Find the right bridging loan: Do your research and consider your financial situation. Then make an informed choice and select the product that suits your needs and repayment capacity the most.
- Make sure you’re eligible for a bridging loan: To get a bridging loan, you need to be a Singaporean, permanent resident, or foreigner with a good credit score and in the process of selling your current property.
- Submit your loan application: Send your bridging loan application to a bank or licensed money lender.
- Receive your bridging loan: Depending on your financial institution, it takes about 24 to 48 hours to get your bridging loan approved.
It Doesn’t Take Too Long To Get A Bridging Loan
The answer to the question how long does it take to get a bridging loan is simple. You can get a bridging loan approved within 24 to 48 hrs depending on the lender you choose.
If you are looking for a licensed money lender in Singapore that provides short-term loans, U Credit is your best bet.
We offer quick processing to ensure you get your loan approved as quickly as possible. What are you waiting for?