What is a Bridging Loan?
Bridging loans are a type of short-term financing that can be used to bridge the gap between the purchase of a new property and the sale of an existing one in Singapore. They are becoming increasingly popular due to the high cost of property and the limited financing options available in the Singaporean property market.
Factors to Consider for Bridging Loans in Property Purchase
In Singapore, bridging loans are a popular financing option for property developers, investors, and homebuyers. They provide a convenient way to finance property purchases or renovations without having to wait for the sale of an existing property. Bridging loans can also be an excellent option for buyers who need to complete a property purchase quickly or require additional funding to secure the property they desire.
1) Bridging Loans Have High Interest Rates
When considering a bridging loan for property purchase, there are several factors to keep in mind. Firstly, the interest rate for a bridging loan can range from 5% to 6% per month depending on the bank of choice. Local banks that offer bridging loans in Singapore include POSB, Standard Chartered and more. The interest rate for a bridging loan is higher than the interest rate for a traditional loan, and borrowers should carefully consider the cost of the loan and ensure that they can afford the repayments before taking out a bridging loan.
2) Short Repayment Term
Secondly, bridging loans in Singapore are typically for a short period, typically up to 6 months. As such, borrowers must have a clear plan on how to pay back the loan and must be confident that they can meet the repayment terms. Bridging loans are intended as interim funding, and borrowers must have a clear strategy for repaying the loan when the term is over.
2) Your Property as Your Collateral
Thirdly, bridging loans in Singapore require a property as collateral. The property must have clear title and a suitable value to secure the loan. Borrowers must be aware that the property may be at risk of repossession if they default on the loan.
Advantages of Taking a Bridging Loan
Bridging loans provide a convenient and flexible way to finance property purchases or renovations without having to wait for the sale of an existing property or other traditional financing options. They are also available for both residential, including properties from the HDB resale market, directly from HDB and private properties. They can also be used for commercial property purchases and a range of other property-related expenses.
As bridging loans are typically approved and disbursed quickly, they can provide immediate access to the funds needed for the property purchase, making it an advantage in a competitive property market such as Singapore.
As Bridging loans are intended as interim financing, they typically have a short repayment term of up to six months, depending on the terms set out by the creditor. This means that borrowers can pay off the loan quickly and avoid long-term debt.
How Much Bridging Loan Can I Take?
Bridging loans cover the amount needed beyond the Loan-To-Value of a property that you are seeking for. This means that you can borrow up to 25% of the buying price of the new property, as long as the earnings from the sale of your previous one are sufficient.
What Documents Do I Need To Apply For A Bridging Loan?
Some documents needed in your application for a bridging loan to a bank include the Option to Purchase (OTP) document, your CPF withdrawal statements and outstanding bank loan statements.
How Long Does It Take To Get a Bridging Loan Approved?
Bridging loans are often approved more faster than regular short-term loans. The loan amount can be available to the borrower as fast as within 24 to 48 hours. Under some conditions, licensed lenders may be able to grant a loan in as quick as an hour.
Temporary Bridging Loans (TBL) and the Temporary Bridging Loan Program (TBLP)
In Singapore, temporary bridging loans (TBL) and the temporary bridging loan program (TBLP) have been introduced by the government to provide financing for businesses that have been affected by the COVID-19 pandemic. The loans are designed to provide temporary relief for companies that are struggling to stay afloat during these uncertain times. The TBL and TBLP are low-interest loans that can be used to cover a range of expenses, including rent, salaries, and other operational costs. However, they are not specifically designed for property purchase and renovation and may not be the best option for property buyers.
In conclusion, bridging loans can be an effective financing solution for property purchases or renovations in Singapore. They provide a convenient way to bridge the gap between the purchase of a new property and the sale of an existing one, or to finance urgent financial needs. However, borrowers must be aware of the higher interest rates and shorter repayment terms associated with bridging loans. They must also have a clear plan for repayment and be confident that they can meet the repayment terms. Bridging loans can be an excellent financing option, but borrowers should carefully consider their suitability for their specific needs and circumstances.
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