Did you know that a bridging loan is the fastest loan to arrange? Yes, it’s true, and it’s also the loan used for any real estate deal with flexible criteria.
The simple answer to how much is a bridging loan is, the amount you can get is limited by the net sales and the CPF balance of the approved sale of your previous home. The amount can vary between 5-6% per annum.
In regards to how much is a bridging loan, let’s discuss further on:
- What a bridging loan is
- What you need to know about it
- And how you can apply for it in Singapore
What Is A Bridging Loan?
A bridging loan is a loan that seals the gap from when you’re required to pay the downpayment of your new property to when you get the net sales of your previous property. Just as the name suggests, it acts as a bridge between two financial transactions.
For example, when you’re looking to upgrade to a better property and are already almost done with signing the sales and purchase agreement. It means you have no choice but to submit your downpayment.
But what do you do when you don’t have the cash or are yet to receive the money for selling your previous property? The solution is you get a bridging loan to seal the gap.
A bridging loan is the cheapest option to get emergency funds for your intended new property. You’re normally excused from immediate repayments for the first several months, which gives you time to organise yourself.
Bridging loans are short-term financial solutions for buyers and property developers. Also, remember bridging loans are meant to be paid quickly, so ensure you have the repayment capacity.
Bridging loans come in two main types:
- Capitalised Interest Bridging Loans
- Simultaneous Repayment Bridging Loans
Let’s compare these two.
Capitalised Interest Bridging Loan Vs Simultaneous Repayment Bridging Loans
The first loan is the capitalised interest which entails the whole amount of the new property you’re planning to purchase. This loan requires you to repay your loan after selling the previous property.
With this loan, you don’t have to make payments for the two loans you have. That is the bridging and home loan.
On the other hand, simultaneous repayment bridging loans work the opposite. You should make both payments, the new home loan and the bridging loan, which can be very tiring to handle.
What To Know Before Getting A Bridging Loan In Singapore
Before you take a bridging loan, it’s good to understand these points about a bridging loan in Singapore. Also, these points will help you with the question of how much is a bridging loan.
- Your home as collateral
- Proper home valuation
Your Home as Collateral
Banks use your home as security for the loan you take. Therefore if you’re not ready to lose your home to the bank, you should ensure you can repay your loan on time.
Proper Home Valuation
We advise that before you even consider taking on a bridging loan, you ensure you don’t overestimate the money you can make from selling your home because it can be a burden if you miscalculate the home value.
Another point to note is your bridging loan options in Singapore. It would be best if you understood the options bridging loans provide when you want to own a home fast. Here is a list of them:
- DBS bridging loan
- It’s a short-term loan of about six months
- You can use the loan to buy different home types
- The interest rate is attached to the prime rate
- You only pay interest on a bridging loan during the loan time and make the full repayment after having the sales proceeds of your previous home
- Standard Chartered’s HDB bridging loan
- It’s also a short-term loan of about six months
- It applies when buying a HDB flat
- It has an interest rate of 3M SIBOR and 2% p.a.
- UOB bridging loan
- It’s a short-term loan of about six months
- It has an interest rate of around 4% and 5%
- You can use it to buy a property of any kind
- You can repay the principal loan amount in full after the loan duration using cash or CPF
How Much Is A Bridging Loan?
A bridging loan can get up to up to a maximum amount of 20% of the home value. This acts as the non-cash down payment for a non-HDB loan.
The loan amount depends on the net proceedings and the CPF balance of the approved sale of the previous home.
The point is that as long as your previous home sales proceeds, you can have your loan limit approved. You can even have it reduce the LTV ratio.
How To Use A Bridging Loan To Lower Your LTV Ratio
Remember that a Loan-To-Value (LTV) ratio is the limit amount given by the monetary authority of Singapore to allow you to borrow a certain amount to finance buying your property or home. The standard LTV is 75%, and HDB gives an LTV of 80%.
Let’s say you purchase a new home of around $1,000,000, then take a home loan of $750,000 (say 75% LTV and a non-cash downpayment of $200,000). And the total net sales of your old home are supposed to be $500,000. Remember, the net sales are yet to reach you.
But you must pay for the new home. So, the $200,000 you took as a bridging loan will cover the non-cash downpayment.
Go ahead and add $50,000 (your cash) for cash downpayment and the bank loan you took of $750,000 to take care of the rest.
But now you have an excess of $300,000 that has remained after paying the bridging loan from the $500,000 you’ve received for the old home.
So, if you want the $300,000 to go to the new home. There are two ways to do that;
- The first is to get the total bank loan of $750,000 and wait till the prepayment penalty time is done, then repay $300,000 of your loan in a huge payment.
- The second way is to increase the amount of your bridging loan to $500,000 instead of $200,000. Then take a home loan of $450,000 (45% LTV).
The moment you get the sales proceeds, you can have more bridging loans, which in your case is to bridge your downpayment and some part of the home loan. Because of the higher amount, you have to have more bridging loan interest costs.
The baseline is when you’re planning to upgrade your home; it’s best to understand how much is a bridging loan.
How To Apply For A Bridging Loan
At U Credit, we make the application process as simple as possible for you. You can follow the following steps when you apply for a loan online:
- Provide your full name
- Provide your contact number
- State the exact amount you require
- Provide us with your monthly salary
- Finally, you can add any relevant information you believe can assist in your application, then hit the submit button
We’ll process your application with this information and then contact you to arrange an appointment.
When applying for a loan in Singapore, apart from understanding how much is a bridging loan and the exact amount you can repay, you also should be eligible and able to provide some documents.
- Whether you’re a Singapore citizen, foreigner or permanent resident, as long as you’re selling your property, you’re eligible for a bridging loan. Though to be approved, you need an excellent credit score.
- When applying to purchase a property, you need the Option to Purchase (OTP) document that shows your exclusive right to buy the property.
- The CPF withdrawal statements
- Outstanding bank loan statements are also essential to determine the available proceeds.
Get a Bridging Loan for Your Next Home
Contact our trusted moneylending company, U Credit, for a bridging loan. We strive to offer you the best loan options fast and with a simple process.
If you’re still worried about how much is a bridging loan in Singapore, our loan officers will ensure they discuss all that with you before you make a decision.
They also take the initiative to explain the payment schedules best with your income, so you don’t burden yourself.
Generally, the maximum amount of money you can get for a bridging loan is based on the total amount of your last home and the CPF balance of the home.
The most common case, though, of how much is a bridging loan is 20% of the home value.
Another thing you should note on bridging loans is the maximum repayment period is a mandatory six months from when you take it. The interest rate can also differ depending on the bank, but in most cases, it’s usually 5-6% per annum.
Frequently Asked Questions
What Is The Minimum Deposit For A Bridging Loan?
You require a minimum deposit of 20% for the value of your home or the 25% regulated for bridging loans. When you deduct interest from your loan, meaning you don’t have monthly payments, it reduces your total loan, which means you might need a higher deposit to make.
Are Bridging Loans a Good Idea?
They can be a good or a bad idea. It all depends on how accurately you determine the pros and cons of the bridging loan before you jump into it.
How Quickly Can I Get a Bridging Loan?
The answer varies depending on banks and at what point you currently are with your property loan approval.