Illustration to Help You Understand How Bridging Loans Work

You would apply for a bridging loan to help cover the financial gap while you sell your home and buy a new one. By taking out a bridging loan, you can raise money and pay off the debt associated with your existing or new house.

In Singapore, those who intend to sell their current apartment to upgrade or downgrade typically take advantage of it. You can use it for the down payment and costs associated with the property purchase while you wait for the selling earnings. First, you need to understand what a bridging loan is and its use.

Features of a Bridging Loan

• A six-month loan with a short duration.
• Valid for the acquisition of any property
• While you wait for the proceeds from the sale of your current home, it helps with the down payment for the new property you’re purchasing.
• The rate of interest associated with the bridging loan has to be paid back during that loan period. 
• You would have to pay the whole amount due as soon as you obtain the sales profits from your current property.

Here’s an example to help you see how it functions: 

Let’s say you want to buy a new apartment during the building process, so you decide to sell your current HDB home. The sales earnings, in both cash and CPF money, would only be given to you after five months. 

Let’s say you have already paid the first 5% of the down payment in cash, but you do not have enough money or CPF savings to cover the remaining 20% since you are still awaiting the profits of the sale of your present HDB apartment. 

You might still go ahead and buy the house by applying for a S$200,000 bridging loan to cover the difference.

Documentation and eligibility requirements

It’s critical to evaluate your ability to repay a bridging loan on time because this kind of loan is intended to be repaid quickly.

Eligibility 

Foreign nationals, permanent residents, and Singaporeans who are selling their homes in Singapore can all apply for bridging loans. Getting approved requires having a high credit score.

Documents Needed

The Option to Purchase (OTP) paperwork, which certifies your exclusive right to buy the subject property, should be able to be submitted with your application to get it started. Your outstanding bank loan statements and CPF withdrawal statements are also needed to determine the earnings that will be available. 

Things to Consider Before Obtaining a Bridge Loan

Your assets as security

The banks will use your belongings as collateral to ensure you pay the loan back. Therefore, you must ensure you have the financial means to return the loan on schedule if you don’t want to risk losing your hard-earned investment. 

Appropriate Assessment of Property

As a general guideline, you should confirm that you are not underestimating how much you can get for the sale of the home before you even consider asking for a bridging loan. A huge headache awaits you if the property value is incorrectly estimated.

Comparing Simultaneous Repayment Bridging Loans with Capitalised Interest

Capitalised interest-bridging loans are the first kind. It pays for the whole cost of the new house you intend to buy. In this case, payments won’t start until you sell your previous residence. As a result, you do not need to make simultaneous loan payments.

Conversely, a bridge loan with simultaneous repayment operates oppositely. Repaying both your house loan and the bridging loan at the same time may be quite taxing.