How To Calculate A Bridging Loan In Singapore
The selling and buying of properties is fairly commonplace in Singapore. However, property transactions can take some time to complete.
Therefore, if you want to sell your old property and get a new one, you will probably have to consider a bridge loan or bridging loan.
As its name suggests, a bridging loan bridges the gap between the time needed to raise the downpayment for your new property while you’re waiting to receive your old property’s sales proceeds.
If you’re in such a situation, then you need a bridging loan from a bank or licensed money lender. But first, you have to understand what you’re getting into. Knowing how to calculate bridging loan is a good start.
Without further ado, learn why you need a bridging loan, how to calculate bridging loan, what to consider before you apply for it, and more.
Why Do You Need A Bridging Loan?
Most people find it prudent not to wait until they receive their sales proceeds, thus they will need to look for funds to cater for a downpayment for the purchase of their new property.
One key factor to consider is that you have to pay for a bridging loan in Singapore within a short period of time, usually six months. Thus, you should first determine whether you’re capable of paying it off.
That said, there are many advantages of taking a bridging loan compared to other financial options that may drain you financially.
Pros And Cons Of Taking A Bridging Loan
If waiting for funds is not an option, then a bridging loan comes in handy. Once you get a lender, and it determines that you’re capable of repaying the loan, you can get access to the money fairly quickly – in about 24 to 28 hours, to be exact. You don’t have to wait for weeks for the funds to be available.
Flexible Repayment Options
You can choose weekly, bi-weekly, or monthly installments, or you can even choose to pay a lump sum. Your legal money lender may offer repayment options depending on your financial situation.
High Interest Charges
You can get a bridging loan from a bank or licensed money lender. For the latter, you will not pay an interest of more than 4% per month for your secured loan. Even if it is an unsecured loan, this interest cap remains.
The interest rate for bridging loans varies between banks, but most banks typically charge between 5-6% per annum.
Short Loan Tenure
As mentioned, you need to repay a bridging loan in about six months as they are essentially short-term loans. The term varies depending on the lender, but mostly do not go beyond a year.
Be careful with the amount you are borrowing and the interest rate, as a short-term loan can result in extremely high monthly loan payments.
Bridging loans come with a certain amount of risk as they are secured by your property.
The loan may be granted quickly, but there is a high interest rate and a small window to repay the borrowed sum in full. There is also the chance that the sale of your old property may fall through.
With the above understanding, you can consider whether taking the bridging loan in Singapore is the right option for you.
How Can A Bridging Loan Help?
If you have found a buyer for your old property, you’re lucky. However, this doesn’t mean that you will get the sales proceeds immediately. You may have to wait for months for the completion of the sales process.
With the help of a bridging loan, you can get funds to secure your dream home so you don’t lose the opportunity. It can also reduce the cost of renting before your existing property sales process ends.
All in all, before getting into an agreement with a lender, knowing what you’re to plunge into may help.
What To Consider Before Getting A Bridging Loan
1. Type of loan: If taking a home loan or HDB bridging loan, a legal money lender will consider your new home as collateral. You have to gauge the situation carefully before you secure other debts against your home.
2. Total cost: You need to have details of what you will incur for your loan. Get information about bridging loan interest rates, as well as processing fees, and other charges you will incur.
If you consider taking a loan from banks, you will pay an interest rate of 5-6% per annum. Legal money lenders charge an interest rate of not more than 4% per month.
Repayment period: You need to ensure that you’re comfortable with the repayment options, especially the loan tenure. For instance, check if your monthly repayments are okay since the tenure is only six months, unlike other mortgage loans that have a longer tenure.
3. Your loan limit: You may get up to 25% of the new property purchase price for your bridging loan. But you must have enough from your old property sales proceeds.
4. Your asset valuation: There will be a valuation for any HDB bridging loan. It would be a disadvantage to have a valuer miscalculate the value of your current property.
Now, there are two main things you need to understand – how to calculate bridging loan and what fees and charges will apply.
How To Calculate Bridging Loan
You can use a bridging loan calculator to get the accurate overall cost of your property loan. The calculator will give you a quote on interest, charges, or any other cost you will incur.
To understand it better, let’s have an example:
Let’s say a valuer estimates your existing property to have a real estate market value of $500,000 and you have found your dream home for a value of $1,500,000. You will be required to pay a downpayment of 25%.
- Cost of your dream home – $1,500,000
- Downpayment of 5% cash from your savings – 5% x $1,500,000 = $75,000
- 20% non-cash downpayment – 20% x $1,500,000 = $300,000
- Assuming your loan-to-value (LTV) ratio is 75%, your optimum quantum amount will be – 75% x $1,500,000 = $1,125,000
Hence, you can take up a bridging loan of $300,000, plus the $75,000 of your savings, and go on with the new property purchase. You can repay the bridging loan when you receive your sales proceeds.
Fees And Charges
Apart from knowing how to calculate bridging loan, you need to know the cost you’re likely to incur when taking a bridging loan.
If you choose to borrow from a licensed money lender, here are the fees and charges you’re likely to incur:
- Interest rate between 1-4% per month
- Charges for late repayment fees not exceeding $60 monthly
- Not more than 10% of the fees of your principal loan after approval
- In case of defaults, there could be legal costs as the money lender recovers their loan through a claim
The calculations and charges or fees to pay enable you to be aware of your ability to repay the bridging loan. Afterward, you can now apply for the loan.
How To Apply For A Bridging Loan
To have a successful bridging loan application, you will require:
- Proof of residence and employment
- CPF withdrawal statements
- Singpass to log into HDB, IRAS, and CPF
- Option to Purchase (OTP)
- Bank loan statements
Learn How To Calculate Bridging Loan
Your dream home may be a stone’s throw away, but without any funds, you may miss it.
If you find it time-consuming to try and understand how to calculate bridging loan, BST Credit is here to help.
We make the process easy for you with best advice tailored to your financial situation and needs, hassle-free application and low rates.