According to the classic proverb, ‘everything comes and goes’. The same thing is true when it comes to properties. In your lifetime, there is a chance that you will own, use, and live in more than one property. For instance, you may buy a single-bedroom condominium unit as your first home when you get married. But in a few years, as your income increases and your family grows, you may need to sell your unit and upgrade to a more spacious property.
In such a case, you will most probably require some help financing your next property purchase. Selling off your current property and purchasing a new one can be a burdensome process, both physically and financially. Fret not; this is where a bridging loan may be beneficial. A bridging loan can essentially help you ease the financial transition when you purchase and sell property.
Read on to learn more about what a bridging loan entails and all you need to know before applying for one.
Bridging loan: what is it?
As its name implies, a bridging loan is a short-term instant cash loan that you can attain to ‘bridge’ the gap between the time you need to pay your new property’s downpayment and the time you receive your previous property’s sales proceeds. In other words, a bridging loan provides you with the money you need for your next property purchase even if you are still waiting to receive the profit from your current property.
There are mainly two types of bridging loans that you can obtain in Singapore:
- Capitalised interest bridging loan
With a capitalised interest bridging loan, you are able to pay the entire purchase of your new property, and mortgage repayment will only begin once your old property is sold. This is the best option for those who do not wish to handle two loans at the same time.
- Simultaneous payment bridging loan
A simultaneous payment bridging loan, on the other hand, allows you to pay off both the loan for your new house as well as the bridging loan at the same time. You will most likely be given 12 months to complete the sale of your old property and begin repayment on your loan.
Common questions about bridging loans
Whether or not to take a bridging loan may seem like a simple open-and-shut case – if there is a necessity to fulfil immediate cash flow needs during the time between demand for cash and its availability, then one should get a bridging loan; if there is none, then one should ideally not.
However, getting a bridging loan is not always the first option when it comes to financing your new property purchase. To help you make a better decision, here are some of the common questions and answers about bridging loans to help you understand better;
- When should one get a bridging loan?
Essentially, if you are planning to purchase a new property and you do not have enough funds at hand to cover its downpayment, obtaining a bridging loan is an excellent financing option. However, if you dive deeper, some situations particularly call for a bridging loan as your wisest and most cost-effective financial aid.
For example, if you are fortunate enough to have your previous property sold as part of an en bloc sale, a bridging loan can quickly help you secure your new property. Since en bloc sales are huge profit-makers, the higher interest rate will be less burdensome.
Similarly, when purchasing a property at an auction and having a much shorter time to complete the sale, a bridging loan is also ideal. Personal loans and other forms of credit, on the other hand, may take longer to disburse your needed funds.
- Where can one obtain a bridging loan?
Bridging loans are offered mainly through banks and licensed money lenders. Oftentimes, banks in Singapore that provide home loans also offer bridging loans as an option. These banks include DBS, UOB, Standard Chartered, and Maybank.
Aside from banks, several licensed money lenders also offer reliable bridging loans with favourable terms. However, to maximise the benefits of taking a bridging loan, it is best to make sure that you get one only from a licensed money lender officially listed on Singapore’s Ministry of Law website.
- Can one attain a bridging loan with bad credit?
Banks often deny applications for a bridging loan to those with a poor credit history or undischarged bankruptcy. That said, each bank has a different risk appetite. The same thing goes for licensed money lenders. Typically, applicants for bridging loans with bad credit scores will be thoroughly evaluated based on their credit report from Credit Bureau Singapore. Therefore, it is essential that you ensure you have a good credit score if you intend to get any type of loan, whether or not they have fast loan approval in Singapore.
- What are the requirements for obtaining a bridging loan?
Aside from having a good credit score, the basic requirements to be eligible for a bridging loan are Singapore citizenship as well as permanent residency. Nonetheless, foreigners who are in the process of selling their property in the country can also apply for the loan.
To seamlessly begin your application, you would ideally need to provide an Option to Purchase (OTP) document, stating that you have the exclusive right to buy the property you are applying the loan for. To identify the proceeds that will be available, your outstanding bank loan statements and Central Provident Fund (CPF) withdrawal statements will most likely be needed as well.
- How much can one borrow from a bridging loan?
Most of the time, a bridging loan is used to cover the non-cash portion of the down payment on one’s new property. In the case of private bank loans, this is usually equivalent to 20 per cent of the downpayment.
However, if you would like to, you have the choice to obtain a bridging loan up to the amount of the net sales proceeds from your previous property. In such a case, you can even use the bridging loan to cover a portion of your home loan itself.
Bridging loans are essentially a great financial aid for those who might require fast cash to pay for the purchase of their new property while still waiting for their old property to be sold. However, like any other type of loan, it would be best if you took some time to think about whether or not a bridging loan is right for you. By knowing the answers to the average person’s frequently asked questions about bridging loans, you can gain a deeper understanding of the advantages of this specific loan.
If you seek a money lending firm to apply for a loan, do not hesitate to contact us at Orange Credit! We provide a variety of loan choices for you to select from, including personal loans, business loans, and foreigner loans – all of which are guaranteed to have affordable interest rates and repayment schemes tailored to your ability to pay.