Ravi Chandran
A bridging loan should be a short term funding option
Is taking a bridging loan for property purchase a good idea?
Table of Contents
A bridging loan is typically used by property buyers to cover the shortfall when buying a new property and waiting for a traditional mortgage to be approved or capital to be released from the sale of their current home.
You have fallen in love with your ideal home, and your offer has been accepted. There is just one snag – you can’t get shot of your old house quickly enough and the deal is at risk of falling through. A bridging loan may be the only way to keep the deal on track.
But be careful before you dive in. Bridging finance is expensive and are usually considered to be a last resort.
If a bridging loan can tide you over in the short term then the extra expense may save you from losing money already spent in the purchase process, as well as reducing stress, if you do it for the wrong reasons you may end up in serious financial difficulty.
For buyers with an imminent purchase but a problem with their own sale there are two options – taking on another mortgage or a bridging loan.
But beware, both will leave the borrower paying off two loans at once, and experts say bridging finance should not be used as a way of simply trying to beat property chain problems. Unless you know when your home sale will go through – for example if there was glitch in a survey that can be remedied in a month or two – be careful about taking on two mortgage-sized debts.
A bridging loan can be beneficial in some circumstances but generally speaking, is aimed at experienced landlords and property developers, including those purchasing at auction.
What is the purpose of bridging loan?
A bridging loan is a short-term loan which can bridge the gap between the purchase price of your new home and maintaining your existing mortgage until your existing home is sold. It allows you to access the equity in your existing home as security for the deposit towards your new dream home.
A bridge or bridging loan is a short term secured loan. Property buyers typically use bridging finance to “bridge” the gap between the purchase of a new property and the approval of a traditional mortgage, the sale of the new property or the release of capital from an existing property.
Could Bridging Finance Help You?
Bridging finance may be able to help you if:
- You want to move but are struggling to sell your property and need to buy your new home quickly
- You’ve lost your buyer but don’t want to let your purchase fall through
- You want to purchase a property that isn’t currently mortgageable or habitable
- You want to convert/refurbish/develop a property
- You want to purchase an auction property
- You want to purchase land so you can self-build a property
- You require funding without monthly interest payments for a short period of time
Is there an alternative to a bridging loan?
Both asset refinancing and invoice finance can be put in place quickly and can provide a cheaper alternative to bridging finance. Other alternatives include commercial loans, secured loans, commercial mortgages and asset loans. If you have the option of these other financing options, you should choose them as they are often much cheaper than bridging finance.
How much can you borrow from a bridging loan?
| Bridging Loan | |
| Maximum Amount | Amount is limited by the net proceeds and CPF balances from the approved sale of your old property. |
| Maximum Tenure | Mandatory to be settled within 6 months. |
| Interest Rates | Varies depending on bank, but generally range from 5% to 6% p.a. |
In the most common scenario, bridging finance have a maximum amount of 20% of the property value (being the non-cash down payment portion of private residential property loan). But in reality, as long as the sales proceeds from your previous property can cover it, you can get a higher limit approved. You may even use it to get a lower LTV ratio as well.
What Do You Need To Qualify For Bridging Loan?
In order to qualify for a bridging finance, you will need to show proof that you are waiting for sales proceeds from your previous property. This can work by providing the Option to Purchase (OTP) agreement document that is signed by the buyer.
Is Bridging Loan Only Limited To Private Property Owners?
Bridging finance do not have a specific target audience. Regardless of whether you are a private property or HDB owner, you will be able to apply for a bridging finance as long as you have the OTP agreement for your current property. It also doesn’t matter whether the property you are selling away is an HDB or private property.
Where Can You Get A Bridging Loan?
Bridging finance is offered by most financial institutions and banks in Singapore. Typically, if the bank or financial institution offers home loan, it will also offer bridging loan to you.
For bridging loan, the interest rate payable is pretty stable across the industry. Banks and financial institutions are likely to offer very similar interest rates to each other. Bridging finance can help you in your bid to become a multi-property owner? Get in touch with loan specialists who will be able to show you how to leverage on bridging loan in your second property purchase.
A good place to start looking for temporary bridging finance is with loan consultants. Loan consultants have good links with multiple lenders and can help you lend the best deals with the lowest interest rates. The services of loan consultants are usually free – which is why you should not hesitate consulting one.
