Bridging Loan in Singapore: Is It Right for You?

What is a Bridging Loan in Singapore?

A bridging loan is essentially a temporary loan that you can obtain from financial institutions like banks or moneylenders, such as Abi Credit. This type of loan is particularly useful when you’re in the middle of buying a new property but haven’t yet received the funds from selling your old one. The primary purpose of a bridging loan in Singapore is to cover the initial costs of purchasing a property, including the down payment and other related expenses like legal fees.

If you need to move into a new home while still waiting for the sale of your previous residence to close, a bridging loan offers a practical solution. It allows you to manage your finances by providing the necessary funds at a critical time. This is especially common among individuals in Singapore looking to either upgrade or downsize their living arrangements without having immediate access to the sale proceeds.

Abi Credit, a licensed money lender in Singapore, provides these bridging loans, tailoring them to fit individual financial needs and situations. They offer two types of bridging loans, giving you options based on your specific circumstances and the timing of the funds from your property sale. This flexibility can be crucial in helping you transition smoothly from one home to another without financial strain.

Key Characteristics of Bridging Loans

• Short-Term Nature: Bridging loans are typically short-term, meaning they are usually paid back within a few months to a year once the permanent financing is in place or the underlying asset is sold.
• Immediate Cash Flow: They provide immediate liquidity to the borrower to meet urgent financial obligations.
• Collateral-Backed: These loans often require collateral, usually in the form of real estate or business inventory, ensuring security for the lender.
• Higher Interest Rates: Due to their short-term and risky nature, bridging loans usually carry higher interest rates compared to more conventional long-term financing options.

Types of Bridging Loans

You can get two types of bridging loans in Singapore that could suit your needs:

1.  Capitalised Interest Bridging Loan

This loan covers the total cost of your new home purchase until you sell your old home. You don’t have to worry about making any payments on this loan until you receive the funds from your old home’s sale. This is particularly useful if managing two sets of payments simultaneously feels overwhelming. However, it’s important to note that this convenience comes at the cost of potentially higher interest rates and the risk of unaffordable payments if the sale of your old home takes longer than expected.

2.  Simultaneous Repayment Bridging Loan

Contrastingly, the simultaneous repayment bridging loan requires you to start repaying both your original mortgage and the bridging loan right away. Although juggling two payments can be challenging, this option typically incurs less interest over time, making it a cost-effective choice if you can manage the immediate financial burden.

In the context of these loans, licensed money lenders like Abi Credit are important as they provide financial solutions tailored to meet the borrower’s specific needs. Abi Credit offers both types of bridging loans, enabling clients to choose according to their financial situations and preferences.

How Much Can You Borrow with a Bridging Loan in Singapore?

When considering a bridging loan in Singapore, it’s important to know how much you can borrow and what factors influence this amount. Bridging loans are typically used by homebuyers to cover the down payment on a new property before the sale of their current home is completed.

Determining the Loan Amount

The amount you can borrow through a bridging loan depends largely on the property value you intend to purchase. Generally, licensed money lenders and banks may offer up to 20% of the new property’s value to help cover the down payment. For example, if you’re buying a home worth $1 million, you could potentially receive a bridging loan of up to $200,000.

Variable Loan Limits

The exact percentage can vary based on the lender and the specifics of your housing deal. Lenders consider the profitability of the transaction and your financial stability when determining the loan amount. If there’s a significant profit evident from the sale of your old home — like selling a property for $1.5 million and buying a new one for $1 million — lenders might be willing to extend more than the typical 20%.

Additional Considerations for Approval

To qualify for a higher loan amount, you’ll need to provide:

• Proof that the sale proceeds from your old property will cover more than the cost of your new home.
• Evidence of steady employment or income.
• A good credit score.

These factors reassure the lender of your ability to repay the loan, potentially influencing the amount they are willing to lend.

When choosing a licensed money lender for a bridging loan in Singapore, consider a provider like Abi Credit. We offer tailored loan solutions that consider your unique financial situation, helping to ensure you get the funds you need with terms that suit your circumstances.

How to Secure a Bridging Loan in Singapore?

Securing a bridging loan in Singapore can be an essential step in managing your finances while transitioning between properties. Here’s a straightforward guide on how to apply for one, whether through a bank or a licensed money lender.

Applying Through a Bank

• Start by registering with your chosen bank.
• Obtain detailed information about the application process for a bridging loan.
• Access the bank’s online portal, fill out the application form, and upload the necessary documents.
• Submit your application and wait for the bank’s response. If approved, you will then receive your loan amount.

Eligibility:

• You must be a Singaporean or permanent resident (PR) above 21 years old.
• You need to be in the process of selling a property.
• Show that you own a property that is currently sellable.
• Having a good credit score is essential.

Required Documents

The following documents are crucial as they prove your intent to buy a specific property.

• The latest statement shows your withdrawals.
• Most recent statements from your existing loans.

Banks tend to have a thorough assessment process and may take longer to process and approve bridging loans in Singapore.

Applying Through Licensed Money Lenders

In contrast to banks, securing a bridging loan in Singapore from licensed money lenders involves a more straightforward and quicker procedure. If you’re considering this route, here’s how the process typically unfolds.

Application Process

• Reach out to a licensed money lender via call or email to start the application process.
• Complete the application form online or provide details over the phone, allowing for convenience and accessibility from any location.
• Submit all required documents as part of the application process.
• After submission, wait for a confirmation call or email from the lender.
• Once confirmed, the loan amount is typically deposited directly into your account.
• This method is designed to be quicker and less complicated than traditional bank procedures.

Eligibility

To be eligible for a bridging loan from a licensed money lender, you must:

• Be at least 18 years old.
• Hold valid citizenship or permanent resident (PR) status in Singapore.
• Have a minimum monthly income of $1,500, or $2,000 if you are a foreigner.
• Possess the Option to Purchase (OTP) from the seller of the property.

Required Documents

• Your NRIC for identity verification.
• Recent salary slips and an employment letter as proof of income and employment.
• Relevant property documents to establish proof of residence.
• Your Singpass to access necessary details from HDB, CPF, and IRAS websites.
• A copy of the OTP document.

Abi Credit exemplifies how licensed money lenders can provide efficient and effective financial solutions, ensuring that clients receive the support they need with minimal hassle.

Should You Consider a Bridging Loan? 4 Key Factors to Evaluate

At a quick look, determining whether to opt for a bridge loan appears simple. If you already have enough money saved for a down payment on a new property, a bridge loan isn’t necessary. However, if you find yourself short on funds, a bridge loan might seem like the obvious choice. Yet, this simple view doesn’t tackle two crucial considerations:

• Is a bridge loan the most suitable option for your situation
• Should you look into other financial alternatives, even if your savings don’t fully cover the down payment?

By addressing these questions, you can gain a clearer understanding of your financial options and make a decision that’s better informed.

1.  Understanding Your Motivation

A bridging loan in Singapore primarily helps cover the down payment on a new property. However, the suitability of a bridging loan varies based on your circumstances. For instance, if you’re involved in a profitable en bloc sale, the high interest rates of a bridging loan may be manageable due to the large profit margin. Conversely, if recent renovations have drained your savings, consider whether a renovation loan might offer a more cost-effective solution.

2.  Assessing Your Financial Reserves

Before opting for a bridging loan, consider the amount of cash you have available. A bridging loan might be practical if you wish to keep your cash free for emergencies, but this approach is beneficial only if you’re preserving easily accessible cash rather than funds in accounts like CPF, which accrue at lower interest rates.

3.  Calculating Total Loan Costs

While bridging loans typically carry higher interest rates, their short duration means you might not pay a significant amount in total interest. It’s important to calculate all potential costs, including any fees, to understand the full financial impact of the loan.

4.  Developing a Contingency Plan

Having a backup plan is crucial. Should the sale of your current property fall through, you need to know the potential exit strategies and penalties associated with your bridging loan. Always discuss these details with your lender to avoid unexpected complications.

What are the Alternatives to Bridging Loans?

While bridging loans are a popular choice for quickly securing a down payment when moving homes, there are other financing options you might consider:

Temporary Loan Scheme

This program, provided by the Singapore government, offers financial assistance similar to bridging loans. It allows Singaporeans to purchase a new apartment without committing to a long-term mortgage loan immediately.

Personal Loans

Both Singaporeans and foreigners have the option to secure personal loans from banks and authorized money lenders. These loans can provide up to six months’ worth of your monthly salary or more, depending on the lender. Personal loans can be a viable alternative for those who may not qualify for a bridging loan. This is due to their flexibility and accessibility.

Why Choose Abi Credit?

When you consider your financial options, Abi Credit stands out with its tailored loan solutions. We cater to your specific interim financial needs. Opting for a loan with Abi Credit can help you manage your financial transitions smoothly and confidently.