Have you ever been in a situation where you manage to buy a new property, super excited to move into it but you met a road-block? At this point, you are likely having to pay for two properties while waiting for the later property to be sold. The burden of paying two properties can weigh heavily, that’s why having a bridging loan will be a great option.
What is a bridging loan?
You may be wondering, what is a Bridging Loan? The name of the bridging loan already states the idea itself”. The “bridge” is firmly focusing on the time between the sale of your existing property and the purchase of the new one. Bridging loan in Singapore is common practice that you will see mortgage bankers suggesting or up-selling the bridging loan to you.
When we take a look at Singapore bridging loan, it can or will cover 15 to 20 percent of the piece of your new home. Essentially loan tenure is usually six (6) months or it can stretch up to eighteen (18) months.
The arrangement is generally for the home loan to be paid in full by the end of the repayment period. The main difference with this loan is that monthly interest rates are often rolled into the loan, which means there is no repayment regarding the loan amount to make during the term of the loan.
The Two Types of Bridging Loans
When you are considering a bridging loan, you would need to consider the type of bridging loan. Below we will hope to help you to provide some understanding of bridging loans available;
1. Capitalized Interest Bridging Loan
For “capitalize interest bridging loans”, this kind of loans are loans which the bank finances the entire amount of your new home. The moment in which you start making repayment will be the time when you completed the sales proceeds of your old house. At this time, the interest accumulates during the entire loan tenure by which time, your repayment will cover the principal amount plus any interest rate made during the sales proceeds.
2. Simultaneous Repayment Bridging Loan
As the word suggests, “simultaneous”, this is where you as the loanee will make simultaneous payment to both your home loan for your new house and the bridging loan. The general duration of this loan arrangement is for twelve (12) months, in which you must sell your old property to repay the loan.
In order for you to qualify for the bridging loan, you must be able to present “Option to Purchase (OTP)” when applying for the bridging loan. Do note that you may also encounter a situation where banks may refuse to provide a bridging loan to you until you are able to prove that the old property has been sold or is in the process of being sold. The banks or lenders will be able to advise you on the necessary documents needed to ensure a smooth approval of the loan.
Why Do You Need A Bridging Loan
Even though the bridging loans are normally offered at higher rates of interest due to the risk involved. Taking out a bridging loan in Singapore comes with many benefits that may only be utilized by individuals that use them.
For instance, you can use a bridging loan to complete a sale of your landed property which would require a large amount of legal processing fees. Most bridging loans cover 15 to 20 percent of the price of your newly purchased home. The loan tenure is usually lasted for six months.
Bridging loans will also help in ensuring that individuals do not come short of a certain financial issue to meet their purchase requirements. Not to be confused with renovation loans which can be covered by personal loans, bridging loans are mainly to tide you during the gap of selling your old house while finalizing the purchase of your new one.
For you to access reliable bridging loans, you can visit any licensed moneylender in Singapore. The moneylender you choose needs to be trustworthy and have acceptable terms for your needs.
Also, make sure that the lender is legitimate and licensed to operate their business. Your money lender needs to be able to offer you the bridging loan amount whenever you need it. The loan should also come with a reasonable repayment period that is convenient for you.
Things To Consider Before Getting A Bridging Loan
Here are some leading question you can post to yourself or even ask the loan provider when you are considering a bridging loan;
1. If the sale of the old house falls through, what are the consequences for me?
This is great to ask as it would better prepare you or any eventuality if such things occur. As a person taking the loan, you need to ensure you know what you are responsible for.
2. What are the cheapest bridging loans in the market?
This is a question for you, the aim of this question is to research what are the best bridging loans in the market. The advantage of this is to ensure you do not end up taking the pricier option of bridging loan and paying a higher price. Some mortgage brokers may even find the cheapest one for you if you asked them to.
3. What are the repayment terms and charges?
The purpose of this question is for you to better understand the monetary responsibilities that you may bare before the sale of the old properties. This question can be asked to the loan provider to ensure you are fully aware of the repayment terms and any hidden fees.
4. What happens if the loan is not repaid before the end of the term?
We know that the purpose of a bridging loan is generally for a short term basis, usually one (1) year or less, but this sometimes may not be the case as the funds for repayment may have taken longer than expected. In case, you will ask what are some arrangements which the lender can provide to you.
Check out the Ultimate Guide to Borrowing from Licensed Money Lender.
A bridging loan is definitely something to consider if you are in need of some quick cash especially waiting for the old property to be sold. For those who are considering bridging loans and would love to understand which lender providers the best possible deals, check Loan Advisor’s best Bridging Loan options.