The housing market in Singapore, like many other sectors, experienced challenges due to the unfavorable economic conditions brought about by the pandemic. However, there is good news as the market has been on an upward trend recently. This has made owning a building more affordable and has also boosted the resale market. As a result, more people are looking to buy their first property, while others are considering upgrading their existing homes.
If you are planning to buy a new property but have not yet completed the sale of your current one, and you need quick financing for the down payment, a bridging loan can be an ideal solution for you.
What Is a Bridging Loan?
A bridging loan is a financing option that helps new property buyers cover the down payment costs. If you have a property that you intend to sell, but the transaction has not been finalized, and you need funds to finance the purchase of your next property quickly, a bridging loan can be beneficial.
This type of loan is especially useful if you have insufficient savings and your CPF funds are tied up in the property you are planning to sell. A bridging loan can provide you with the necessary funds to cover the down payment for your new purchase.
Different lending institutions may have varying eligibility and requirements criteria for bridging loans. For example, some lenders may offer enough funds to cover the down payment. It’s important to note that a bridging loan may have different parameters than a traditional property loan.
Types of Bridging Loans in Singapore
There are two main types of bridging loans available in Singapore’s financial industry, distinguished by how they are repaid. Let’s briefly explore each type and what makes them unique:
- Simultaneous Repayment Bridging Loan: With this type of bridging loan, you are required to make monthly loan repayments for both your house loan and the bridging loan simultaneously. This can be financially burdensome. It’s crucial to note that simultaneous repayment is not available from licensed moneylenders.
- Capitalised Interest Bridging Loan: A capitalised interest bridging loan covers some of the costs of your new property. The loan repayment begins after the sale of your previous home is completed. This option is suitable if you prefer not to have two loans running simultaneously.
Pros of a Bridging Loan
- Accessible from Banks and Licensed Moneylenders: Bridging loans can be obtained from both banks and licensed moneylenders, providing borrowers with multiple options.
- Suitable for Individuals with No Credit Scores: Even individuals with no credit scores can benefit from licensed moneylender bridging loans since they consider the borrower’s ability to repay rather than solely relying on credit history.
- Quick Processing: Bridging loans are processed more quickly compared to traditional home and property loans, allowing borrowers to secure the necessary funds promptly.
- Utilize CPF Funds: Bridging loans can be repaid using CPF funds, providing borrowers with more flexibility in managing their finances.
Cons of a Bridging Loan
- Collateral Requirement: Banks typically require collateral to approve a bridging loan. If you default on the loan, the bank may seize and auction off the collateral.
- Higher Interest Rates and Shorter Loan Tenure: Bridging loans generally have higher interest rates and shorter loan tenures compared to traditional home loans.
- Limited to Covering Down Payment: Bridging loans typically provide enough cash to cover the down payment but not the full purchase price of the property.
How Much Is the Down Payment for an HDB Loan?
The down payment for an HDB loan varies depending on the property value. However, it’s important to note that there are two components to the down payment. The first is a cash deposit of 5% of the new property
value, and the second is a 20% CPF deposit.
Let’s consider an example scenario:
Suppose you are in the process of selling your old property and looking to buy a new HDB flat priced at $1 million. The required payments for the new property would be as follows:
- A 5% cash down payment (first component) amounting to $50,000.
- A second down payment in cash or CPF of 20% of the price, totaling $200,000.
- Lastly, a loan to cover the remaining 75% of the property’s purchase price.
In this scenario, if you have funds to cover the first down payment but are unable to pay the second down payment, a bridging loan can be utilized to finance the required $200,000.
Bridging Loan Vs. Traditional Loans
Let’s compare bridging loans, HDB House Loans, and Bank Loans to understand the differences:
- Moneylender Bridging Loan: Offered by licensed moneylenders, these loans have a maximum borrowing amount of six times your monthly salary. They have a loan tenure of one month or until the property is sold, and they are applicable to all property types.
- Bank Bridging Loan: Banks offer bridging loans with better interest rates, an extended loan tenure (up to six months), and a larger borrowing amount. However, not all banks provide loans for all property types, and the processing and disbursement time may take about a week or more.
- HDB Housing Loan: HDB offers housing loans through Participating Financial Institutions (PFIs). These loans have a maximum loan-to-value (LTV) ratio of up to 85% of the new property’s purchase price. The loan tenure can extend up to 25 years, and they are specifically designed for HDB flats.
Top Bridging Loans in Singapore
Here is a comparison of some top bridging loans offered by banks and moneylenders in Singapore:
- Maybank HDB Home Loan: Interest Rate – 1.4% to 1.6%, Tenure – At least six months, Property Type – HDB.
- DBS Bridging Loan: Interest Rate – Prime Rate, Tenure – Up to six months, Property Type – All property types.
- Standard Chartered’s HDB Bridging Loan: Interest Rate – 3 month’s SIBOR + 2.00% p.a., Tenure – Six months, Property Type – HDB.
- UOB HDB Home Loan: Interest Rate – 4% to 5%, Tenure – At least six months, Property Type – HDB.
- OCBC Home Loan: Interest Rate – 1.55% p.a., Tenure – Up to six months, Property Type – Home.
- Moneylenders Bridging Loan: Interest Rate – 1-4% per month, Tenure – One month or until the property is sold, Property Type – All property types.
Banks offer lower interest rates, longer loan tenures, and larger loan amounts, but their eligibility criteria may be stricter, and the loan processing time is typically longer. On the other hand, licensed moneylenders might have slightly higher interest rates, but they have more lenient requirements and faster loan processing times.
How to Qualify for a Bridging Loan
Here are some eligibility and requirements for obtaining a bridging loan from a bank or licensed moneylender in Singapore:
Eligibility & Requirements for Bank Loan:
– Citizenship: Citizen, permanent resident, or foreigner residing in Singapore.
– Age: 21 years or older.
– Property Ownership: Documents proving you have a property you are selling.
– Credit Score: High credit
If you are considering a bridging loan to facilitate your property purchase or have any further inquiries, don’t hesitate to contact SU Credit. Our dedicated team is ready to assist you in navigating the bridging loan process and finding the best solution for your needs. You can reach us at our main office located at 175 Bencoolen Street #01-36, Singapore 189649. Feel free to contact us via phone at 6636 5644 or email us at firstname.lastname@example.org. We look forward to helping you achieve your homeownership goals.