A "low interest" loan shouldn't mean you have very little interest in paying it back!

    Bridging Loan

    Bridging loans are meant to be used when you want to purchase a new property while still waiting to receive the sales proceeds from your current property. As bridging loans help “bridge” this gap between the purchase of your new home and the sale of your existing home, they are referred to as bridging loans.

    What you need to know about Bridging Loans

    Bridging loans are not long-term loans. They are short-term financing options offered by many banks and financial institutions in Singapore, often with home loan packages. A bridging loan is a secured loan. You can apply for a bridging loan and complete the purchase of your new home if you are still waiting to be paid from selling your existing home. Bridging loans in Singapore are available for the purchase of HDB flats as well as private properties.

    Bridging loans are most valuable when used as temporary solutions in case of shortfall of cash. They are not meant to be used as home loans. Bridging loan tenures usually do not exceed one year and banks do not offer high loan quantum for such loans.

    Bridging Loan

    Features of Bridging Loans in Singapore

    Here are some common features associated with bridging loans in Singapore:

    • Many banks offer bridging loans for a tenure of 6 months.
    • Several banks give you the option to only repay the interest on the loan until you receive the payment on your current home. You can choose to repay the principal amount after you get money from the sale of your current home.
    • There are options to repay the entire principal amount after you receive the sales proceeds from selling your existing home.
    • You can choose to apply for a bridging loan for the purchase of an HDB flat or a private home.
    • Some banks (such as DBS and UOB) offer the option to apply for a bridging loan along with your home loan application.

    Banks Offering Bridging Loans in Singapore

    Here are some of the popular banks and financial institutions that offer bridging loans in Singapore:

    • Standard Chartered
    • HSBC
    • DBS
    • UOB
    • SBI Singapore
    • Hong Leong Finance (HLF)
    • Maybank
    • The Credit Cooperative (TCC)

    Difference between a Bridging Loan and a Home Equity Loan

    Bridging loans are applied for after listing your existing house to be sold. You have the option to repay the full loan after you have successfully completed selling your home and receive the proceeds for it. However, with a home equity loan, you have to set aside financing for the loan before listing it. This is because with a home equity loan, the loan amount you receive is against the value of your home. Therefore, you cannot sell your house while still repaying your loan.

    A home equity loan can be used for any purpose, not specifically related to housing needs, improvements or renovation. However, a bridging loan is a temporary arrangement to purchase a new house before receiving the sales amount from your existing house. It cannot be used for any other purpose.

    When are Bridging Loans most Useful?

    Generally bridging loans are used when investing in properties, for development purpose and buy – to – let i.e. when you want to give your property for rent. However, recently a slight deviation in this purpose has been noticed where people are now looking at bridging loans because financial institutions and other private banks are taking longer to process large home loan applications. So, bridging loans are now seen as a short cut method to procure a loan much faster.

    As already established, a bridging loan is a short term loan, therefore, when you have decided to get a bridging loan, you also need to carefully evaluate how you are going to get out of it. Today, bridging loans are also being perceived as an alternative option to mainstream loans. Hence, as a solution, you could take a mortgage loan to get out of your bridging loan. However, the most obvious solution would be when the settlement payment for the property that you sold comes through. You could also try buy to let mortgage as a third solution.

    One of the pitfalls to your solution would be that, many banks and financial institutions are hesitant to give you a loan once they see that you have applied for a bridging loan. There is no guarantee of your application being accepted for a mainstream loan once the lender finds out that you have a bridging loan to pay off. If this circumstance comes true, you may even end up losing your property because you won’t have a way to pay off your bridging loan and you may not even have enough time to do so as the tenures of bridging loans are significantly shorter. Another concern is that many advisors in a haste are recommending bridging loans to their clients without completely assessing their clients’ financial situations when it may not be the best solution. Also, if you are new to the concept of bridging loans, be careful to uncover all the fees involved because you may be charged additional administrative fees and legal fees that can prove to be very hefty for you apart from the high interest rate. Having said the above, bridging loans can be very useful and a choice for you, provided you do not view them as an alternative to getting a mainstream loan. They have been typically designed to bridge a gap between the ongoing sale of your current property when you are yet to receive the settlement and needing financial backing for your new property. And due to this purpose, getting a bridging loan is faster than a normal loan.

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