The Ultimate Guide to Bridging Loans In Singapore
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Are you wondering how bridging loans can fuel property purchases? Follow this article to learn more about eligibility requirements, interest rates, and other details.
We may buy several homes in our lifetime based on the requirements as we progress through our lives.
For instance, most people opt for an HDB flat as their marital property as it is cheaper than other properties in Singapore.
However, as your family expands, you may want to upgrade your house and sell your first property to transition to a more spacious abode.
Although transitioning from a smaller HDB flat to a spacious property is effortless, you will have to employ various financial methods like bridging loans to make the transition smooth.
This article will cover all the information regarding bridging loans and how you can use them to sell or buy properties with minimal fuss.
Our guide will also explain the different types and advantages of bridge loans and how you can qualify for one.
What Is A Bridging Loan?
Financial institutions like the OCBC bank offer various finance products like bridge loans to Singapore permanent residents or common borrowers.
These loans help you sustain the period where you have to pay property down payments till you receive your previous property’s sales proceeds.
For instance, you have decided to purchase a new property and have already signed the property agreements.
So, you will have to make the downpayment for your new property without waiting for funds generated from the previous property’s sale.
Furthermore, some banks can also provide bridge loans even before you sell your existing property.
In short, these banks only charge interest on your monthly repayments, and you can make the principal repayment after your receive the cash proceeds or funds from your previous property.
Here is a chart to help you understand bridging loan basics in Singapore.
Up to six months
Based on the CPF balances and net proceeds acquired from your previous property’s sale
5-6% yearly interest rate (based on your bank’s simple interest rate, promotional interest rate, or profit rate competitive rate.
No processing fee (depending on your bank)
Licensed moneylenders can also ease your cash flow crisis by providing a bridge loan with similar parameters as a personal loan.
This loan helps you bridge the gap and offers financial freedom to purchase a property with minimum fuss.
However, bridging loans have some credit criteria, and you may witness contrasting interest rates from different banks.
In short, it would be best to evaluate the bank requirements and understand loan term payments to get the best financial products.
What Are The Types Of Bridging Loans Available?
You can find two types of bridging loans in Singapore – Capitalized interest bridging loans and simultaneous payment bridging loans.
Then there are other types of loans like a temporary bridging loan or business bridging loan, especially when you are looking for investment property loans.
In short, you can evaluate your requirements and opt for the best personal or commercial bridge loan for a limited time.
Let us now learn more about the two main types of bridging loans in Singapore.
Capitalized interest bridging loan
Under this category, financial institutes provide the entire purchase price for your new property, similar to the UOB Home Solution product.
For instance, you can ask a bank for funds or cash reserves to purchase a new property even without selling your existing property.
In short, the monthly mortgage installments will only start after your existing property gets sold.
The capitalized interest bridging loan is perfect for those who do not want the complexities of handling two loans simultaneously and love to have the financial freedom to sign deals without waiting for their existing property to sell.
Simultaneous payment bridging loan
Besides capitalized interest bridge loans, banks and financial institutions also offer a parallel loan solution, which helps borrowers to run two loans simultaneously.
For instance, if you have procured a UOB home loan for your new property and have an existing bridging loan, this option will help you to pay both the loans simultaneously.
In short, you can work with these loans in tandem and clear them with minimal fuss, even if you have an existing UOB HDB home loan.
However, the simultaneous payment bridging loan is not a long-term financing option as you have to clear the outstanding loan balance within shorter loan tenure.
Furthermore, you must sell your existing property within 12 months and commence your repayment cycle.
Although Simultaneous payment bridging loans offer more features, it is more tedious than their capitalized counterpart.
Besides capitalized and simultaneous bridging loans, you can also get an open or closed bridging loan.
However, banks and financial institutions prefer closed bridge loans over open ones as they offer better loan repayment assurance.
What Are The Benefits And Features Of Bridging Loan?
Besides helping you purchase new properties, a bridging loan can help you in more ways than you can imagine.
These loans can improve your short-term business expenses or enhance your financial reports, especially when you pursue them as business loans.
Here are the benefits of securing bridge loans in Singapore.
Solves cash flow crisis
Securing an SME working capital loan can be tricky and may not fulfill your requirements, especially when your company is experiencing a cash flow crisis.
However, bridge loans can fuel the process of acquiring working capital loans or long-term business loans as you can cover expenses more efficiently.
For instance, you do not have to apply for payroll loans to cover payroll expenses, as a bridge loan can suffice various inventory costs within a company.
In short, a bridge loan works as a type of business loan that will help your company manage a cash flow crisis.
However, banks and financial institutions might ask for an equity position to secure their interests.
Purchasing at auctions
Property auctions can go live without any prior information, meaning you might end up with a profitable deal only to find out that you do not have funds.
In short, a bridging loan helps you secure a profitable property in an auction with fewer obstacles.
For instance, you can compare bridging loans with short-term business loans, which will fuel your immediate requirement of funds, especially for property purchases during auctions.
After securing the property via a bridging loan, you can follow the repayment plan to close the remaining loan tenure.
Renovation and restoration
Renovating a poor-conditioned property and selling it at substantial profits is a lucrative business option in Singapore.
However, these properties rarely pop up in the market, so making quick arrangements for funds is vital to secure the property.
Bridging loans are the perfect solution as they are easier to get than other loans, especially if you are in the property development or construction industry.
Prevents property foreclosures
Besides providing funds for purchasing new properties, you can use a bridging loan to prevent property foreclosure.
For instance, if you have an existing loan on your current property and are facing problems repaying it, you can use a bridging loan to clear your loan.
In short, a bridging loan can help you retain control over your property and avoid forced sales.
Purchasing a bargain property
Singapore offers a lucrative property industry where you can make huge profits, especially on bargain properties.
However, you will require instant cash to secure these properties, and a bridging loan is undoubtedly a good option for the job.
Once you purchase the property, you can sell it with higher capital gains and repay your loan.
Improve credit score
An annual valuation report is crucial for businesses to grow and secure attractive rates of business loans for expansions.
However, your loan application journey may take a hit if your business has a low credit score.
Procuring a bridging loan with a reputed financial institute like OCBC Business Banking can improve your credit score as it requires a minimum incorporation requirement.
These loans will improve the low credit score penalty for SMEs and help them expand their businesses.
Furthermore, banks speed up the loan lock-in period for bridging loans as collateral requirements are fewer than other loans.
What Is The Eligibility Of A Bridging Loan?
The eligibility criteria for bridging loans in Singapore can vary for different banks and depends on the type of loan requirements.
For instance, SBI Singapore offers a maximum bridge loan amount of $300,000 for borrowers, depending on their requirements.
Likewise, borrowers will also have to provide sales proof and procure a home with the bridge loan.
Additionally, borrowers will have to pay a 5% down payment from their side before getting their bridging loans.
Furthermore, the eligibility criteria, like the competitive rate eligibility, can vary for different products.
For instance, here are the eligibility criteria for a temporary bridging loan.
- Burrower must be a business entity with physical presence and registration with the Singapore government.
- The company must have a Singapore Permanent Resident or citizen holding at least 30% equity.
What Are The Charges?
Although most banks and financial institutes follow identical patterns, you may witness differences in processing charges for bridging loans depending on the type of property.
For instance, if you are purchasing an under-construction condominium unit, you will have to wait for at least 5 months to receive your sales proceeds.
Likewise, banks will evaluate the purchase price, down payment, and loan amount and offer the best bridging loan option to borrowers.
Here is a chart that will help you understand how banks finance a $2,000,000 property purchase.
5% Down payment (cash)
5% of $2,000,000 = $100,000
20% Down payment (Non cash)
20% of $2,000,000 = $400,000
Loan amount (assuming 75% LTV)
75% of $2,000,000 = $1,500,000
The above calculation may differ depending on the type of property and your loan requirement, but the parameters remain the same for most financial institutions.
What Are The Requirements Needed
After evaluating your eligibility criteria, you will have to ensure that you provide all the required documents to qualify for a bridging loan.
These requirements may differ for different banks and also depend on the type of existing property you have sold.
For HDB owners
If your existing property is an HDB flat, you will have to produce the following documents to procure a bridging loan.
- Option to Purchase or OTP for your existing HDB flat
- Account statements depicting up-to-date loan balance
- Up-to-date withdrawal statement for CPF
- HDB’s appointment letter
- In-principle approval or IPA from HDB
- HDB authorization letter
- Caveat lodged for the existing HDB flat
- An undertaking letter from the law firm participating in the sale
Private property owners
If your existing property is private property, you will have to submit the following documents to qualify for a bridging loan.
- Duly exercised OTP for your first private property
- Up-to-date CPF withdrawal statements
- Account statements depicting up-to-date loan balance
- Exercise letter
- An undertaking letter from the law firm participating in the sale
- Caveat lodged for the existing private property
However, it would be best to visit your bank and seek further information regarding possible litigations on borrowers, loan obligation protocols, or potential credit cards credit limit agreements before proceeding.
How To Apply For A Bridging Loan?
Once you make up your mind about bridging loans, it would be best to begin the loan application to get the best results.
For instance, after selecting the property, prepare a file with property details like OTP deeds, CPF account statements, exercise letters, and other documents.
You will have to submit these documents to the bank to start the verification process.
Once your documents have been verified, financial institutes will provide the best bridging loan package based on your requirements.
Furthermore, you can also visit third-party websites to learn more about the bridging loan process.
Likewise, you can also get third-party referrals to save more on your bridging loan.
Purpose Of A Bridging Loan
As mentioned earlier, a bridging loan allows you to have financial freedom when you want to purchase a second property without waiting for the sales proceeds to arrive.
Here are some of the best reasons why you should opt for a bridging loan.
- You need a short-term loan to finance your property purchase.
- You can procure a bridging loan for all property types.
- You can purchase a property without minimal funds without receiving the cash proceeds from your previous property.
- You only have to pay the interest during the loan repayment period and clear the loan once you receive the sales proceeds.
What Are The Factors To Consider When Getting A Bridging Loan?
Evaluating your loan requirements is one of the best practices before procuring a bridging loan.
These considerations will help you make an informed debt reduction plan and can even get you a cash rebate.
Here are the factors you need to consider when getting a bridging loan.
Calculating your loan requirement or amount will help you settle your loan early and also prevent a financial crisis.
Since bridging loans come with short loan tenure, keeping your loan amount low will make your repayment cycle more manageable.
In short, keep your bridge loan as low as possible and settle your outstanding loan amount as soon as you receive the sales proceeds of your previous property.
Although bridging loans offer instant cash with minimal effort, you will have to pay a higher interest rate on your loan.
For instance, banks and financial institutes offer bridge loans at 5 to 6% interest per annum, which is very high than home loans.
Thankfully, you only pay the interest and are liable to clear the principle once you receive the sales proceeds from your previous property.
In short, finding the lowest interest rate on bridging loans can save you a lot.
Bridging loans usually come with short loan tenures, depending on the bank.
Although you may get a longer repayment period with some banks, you must keep a check on the interest rate and loan amount to avoid a financial crunch.
Furthermore, ensure that you procure only the required amount as your bridging loan as monthly installments can become daunting.
Monthly repayments can become daunting, especially when you experience a cash flow crisis.
You will have to chart a debt reduction plan and look out for ways to sustain your monthly installments.
In short, monthly repayments should be your top priority when evaluating a bridging loan, as failure to sustain these payments might even land your new property on a mortgage.
Bridging loans often come with a dark side as most banks issue these loans on collateral requirements.
Furthermore, you will procure a loan before receiving your previous property’s sales proceeds, which can go awry if the sale and purchase agreement takes more time.
And that’s not all! Bridging loans come with a high-interest rate, which can make life challenging for a borrower.
Pros Of A Bridging Loan In Singapore
Lucrative property deals can turn up overnight in Singapore, so having financial stability is one of the most significant factors to staying on top of the property industry.
Likewise, a growing company can meet with a cash flow crisis due to multiple reasons, which means emergency funds will always come in handy.
But what if you don’t have savings or funds?
Bridging loans are one of the best ways to deal with these problems as they require less documentation and processing time.
You can obtain a bridging loan within a week and have instant funds to purchase your next property or maintain your business without waiting for months.
Unlike other loans where you don’t have the option to choose between repayments cycles, bridging loans allow borrowers to make repayments on a weekly or monthly basis.
Furthermore, you can evaluate your long-term financing and estimate your business revenue before settling your loan amount.
However, you will have to choose a financial institution that supports flexible repayments to get the best benefits.
Most bridging loans come with short-term tenures, usually lasting for a year.
This short-term liability gives you financial freedom so that you will have lesser weights on your shoulder.
Furthermore, businesses can focus on their business expansion instead of worrying about their repayment cycle.
However, you can extend the loan tenure if you face some difficulties during the repayment period.
What Is Temporary Bridging Loan?
After the pandemic, many businesses have struggled with cash flow crises and other problems related to funds.
Although you can use other measures to curb this problem, opting for a temporary bridging loan is one of the best ways of solving this problem.
Many financial institutions have joined hands to roll out various C-19 (Temporary bridging loan schemes) to help businesses sustain their operations.
Furthermore, the Singaporean government has offered various programs to help businesses thrive after the pandemic by introducing extended loan tenures on bridging loans.
Here are the benefits of temporary bridging loans.
No collateral required
A temporary bridging loan has no collateral requirements, meaning you don’t have to produce a property as collateral.
This condition helps a business to get instant funds to sustain its cash flow and work on business expansion.
Furthermore, the lack of collateral requirements reduces the processing time for bridging loans as banks can skip verifying property details.
Extended loan tenure
Banks and financial institutes offer extended loan tenures to eligible businesses for up to five years, which is more than other bridging loans.
Higher loan amount
Businesses can get a higher loan amount of up to $1 million through the temporary bridging loan program.
You can use this amount for short-term or long-term expenses, including marketing costs and rentals, to sustain the company’s operations.
However, banks and financial institutes will evaluate your company’s performance and credit history to decide the final amount.
Lower interest rate
Although standard bridging loan interest starts at 5% per annum, borrowers under the temporary scheme can avail of a lower interest rate of 3%.
Financial institutes calculate the financial performance and credit history of a business to provide a lower interest rate for business owners.
In short, whenever you type in queries like “business loan broker help” or “temporary relief fund for businesses in Singapore,” temporary bridging loans will undoubtedly pop up in your search result.
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