Changes that life brings you may cause you to sell one home and purchase another.
Whatever the reason, you will need to vacate your current home for the new owners and pay a downpayment to move into the new property.
The problem is that the proceeds of a property sale take a while to come in, while the downpayment is needed upfront before you can get the new property.
Maybe you don’t have enough for the downpayment or moving expenses. If that’s the case, you can apply for a bridging loan to cover these financial obligations while waiting for the money from the sale of your former property to come in.
Read on to learn more about a bridging loan, how it can help you, and how to calculate bridging loan.
Why Do You Need A Bridging Loan?
A bridging loan helps fill the financing gap when you sell a property and initiate the purchase of another.
The gap occurs because, typically, sale proceeds do not come in until much later. If the old property were a residential or business premise, you would need an alternative place to move into.
Now, instead of losing money by staying at a hotel, renting or leasing a property, many opt to purchase a new property. So you would use the bridging loan to pay the downpayment for the new property.
But if you already have money for the downpayment, you can use a bridging loan to renovate the old and new properties. You can also use it to replace furniture or appliances.
In essence, a bridging loan in Singapore targets those who are “between homes” and can use some financial assistance as they move into their new properties and wait to finalise the sale of their old homes.
How Can A Bridging Loan Help?
As mentioned, a bridging loan allows an investor to close the gap between getting the proceeds of the sale of an old property to paying for the purchase of a new property.
The money is usually used as a downpayment for the new property, but some may use it to meet the obligations of the move. You can use it to resolve any financial need in the best way you see fit.
Besides facilitating your move to a new property, the bridging loan is preferred to other loan products because it is processed quickly. This would help you deal with emergencies.
In fact, it takes only 24 to 48 hours from when you submit your application for the money to be disbursed. Other loans take longer and would not be of help when you’re pressed for cash.
A third reason a bridging loan helps is that it makes credit available even to those who would not qualify for a loan otherwise.
With other loan types, you may need to submit your credit score, loan information report, be of a particular income bracket, and other similar conditions.
But, with a bridging loan being an asset-backed loan, you need not present any other documentation besides your property ownership documentation and some proof that you can make the loan payments.
With only a few requirements, you can qualify for the loan quickly because there are not too many checks involved.
A bridging loan can be used to purchase all kinds of property. You can even take out a HDB bridging loan when purchasing an HDB flat.
Experts advise that you source the bridging loan from the lender from whom you are getting your home loan, if any, for easier loan management.
Fortunately, the cost of a bridging loan will not balloon because you only need to pay the interest for the period you held the loan. You could clear it then proceed to pay the rest of the loan.
What To Consider Before Getting A Bridging Loan
The following factors are worth a careful look at as they determine your success in obtaining and utilising your bridging loan.
Be clear about the loan tenure before you sign up for any loan. Ensure that the stipulated term is enough for you to pay the amount you have borrowed in its entirety. Typically, a bridging loan’s tenure is six months.
These depend on the loan tenure. But you need to make sure that you can comfortably pay the stipulated amount even before signing up for the loan.
Condition Of The Real Estate Market
Take some time to assess the property market to ensure that your property’s value is not declining. If its value decreases, you might not get as much as you anticipated from selling your old property.
A depressed property market would make it difficult for you to get enough from it to pay the loan and pay for the new property.
Total Cost Of The Bridging Loan
Next, calculate the total cost of the bridging loan. Consider the loan processing fees, the loan amount, and any other applicable fees, according to your lender’s terms.
So when scouring the market for a money lender, research their loan amounts, processing fees, bridging loan interest rates, and any other applicable costs before committing to one. Choose the one with the most favourable terms.
How To Apply For A Bridging Loan
As mentioned, the loan application process for a bridging loan is straightforward and short.
You only have to submit a few documents that the money lender requests, after which the lender handles everything else.
The documents your money lender will ask for are your money lender report, a statement of your outstanding bank loan, and your Option to Purchase.
The lender uses the documentation presented to confirm your asset ownership and capacity to pay the loan. You just need to wait for the lender to inform you of the outcome of your application.
Your loan repayment history indicates your commitment to repaying your debts. So ensure that it reflects positively on you by constantly making timely payments.
How To Calculate Bridging Loan
Today, most lenders offer their customers an online calculator on which they enter their figures and get the loan amount they qualify for. But here’s how the figure you get is derived:
Say, for example, you’re financing a $500,000 property purchase, and the proceeds from selling your old property are to arrive in six months.
The payments will be:
|Cash Or CPF Downpayment||20%||$100,000|
|Loan Amount||LTV of 75%||$375,000|
Assuming that you paid the initial $25,000 in cash, you now could apply for a 20% bridging loan to cover the cash or CPF deficiency.
Fees And Charges
There are no hidden charges attached to this loan. You may only have to pay a late fee, which is only 3-5% of the loan borrowed.
But as you will find as you interact with lenders, the fee is rarely imposed because lenders give a grace period during which borrowers can still make their payments without attracting a fine.
However, even with the grace period, do not become complacent and delay your payments because your payment behaviour becomes a part of your permanent borrowing history, which could negatively affect your future dealings with money lenders.
A Bridging Loan May Be A Good Option
It’s time to find the right lender since you know how to calculate bridging loan.
If you don’t have enough cash on hand, Credit 21 stands out as a reliable licensed money lender committed to helping our clients upgrade their financial situations.
We have some of the most favourable and inclusive terms that apply to borrowers of all income brackets.
Visit our office at 10 Anson Road, #01-07 International Plaza, Singapore 079903. Our loan professionals are willing and ready to assist you, and you’ll be sure to get something that suits your financial needs.
Frequently Asked Questions
What Is The Interest Rate Of A Bridging Loan?
The interest rate typically ranges from 5-6% per annum, depending on the lender you approach.
What If I Have Bad Credit?
Every lender has a unique risk appetite. Even if you have a bad credit history, some may still offer you a bridging loan.
So approach each lender individually and see if it can grant you what you’re looking for.