How Long Does It Take To Get A Bridging Loan?

When you are looking to purchase a new property, it is important to consider all of your financing options. One of those alternatives is a bridging loan.

A bridging loan can be a great way to finance the purchase of a new property before you sell your old one.

But how long does it take to get a bridging loan? And what are the benefits of using one? Read on for answers to these questions and more.

How Does A Bridging Loan Work?

The meaning of a bridging loan lies in its name:

This secured, short-term financial option helps you bridge that gap between selling your current home and buying a new one.

A bridging loan is a useful financial option if you need your former property’s proceeds to purchase a new home, but these sales proceeds have not gone through yet.

Here is how a bridging loan works, step by step:

1. You find a new property that you want to purchase.
2. You apply for a bridging loan from a licensed money lender or bank (after doing your research, of course).
3. The loan is approved, and the funds are released.
4. You use the funds to purchase the new property.
5. You sell your old property and repay the bridging loan in full, plus interest and other fees.

Note: The maximum tenure for a bridging loan in Singapore is six months with banks and one month with most legal money lenders.

How Long Does It Take To Get A Bridging Loan?

The great thing about bridging loans is that they can be approved relatively quickly.

So how long does it take to get a bridging loan?

The approval process may take 24 to 48 hours if you apply at a bank. However, if you submit your application to a licensed money lender, the process may only take an hour.

Remember: Even if you get fast approval within a few minutes, a licensed money lender is mandated by the Ministry of Law to conduct due diligence at their headquarters. So do not accept money from someone who does not hold this official face-to-face meeting.

Types Of Bridging Loans

To understand what a bridging loan is in Singapore, you must review all your options. There are two types of such loans you can opt for:

1. Capitalised Interest Bridging Loan

This bridging loan alternative means the bank will give you the entire amount for purchasing your new home. After you get the money from selling your old home, you will have to repay the loan amount plus interest.

• The benefit of using this bridging loan is that you do not need to worry about making any interest payments until the sale of your property is complete.
• On the downside, you may need to pay a higher interest rate. The reason is that the bank will be shouldering all the risks during the interim period.

2. Simultaneous Repayment Bridging Loan

This bridging loan entails repaying it and the home loan simultaneously. The good news is you have 12 months to find a borrower for your former property.

Remember: The bridging loan’s maximum tenure is still six months, even if it takes you longer than that to finalise the sale.

What To Consider Before Getting A Bridging Loan

Now you know what a bridging loan is in Singapore, how it works, and how long does it take to get a bridging loan. But is it your best option? To answer this question, let’s review the variables below:

Interest Rate

The first thing you should do is compare the interest rates of banks and licensed money lenders.

Your local bank may have a bridging loan interest rate of 5-6% per annum, whereas a money lender usually requires between 1-4% per month.

However:

• A bridging loan at a money lender has a short tenure of just one month.
• The approval process is faster and smoother.

Pro tip: Some financial institutions allow you to repay the interest first, without making any payments towards your outstanding loan balance until after you sell the original property.

Remember: You can use your CPF to repay your bridging loan, but the interest must be reimbursed in cash.

Monthly Installments

You should also consider whether you can repay the bridging loan installments comfortably.

Pro tip: It is crucial to have a buffer, just in case the sale of your former home takes longer than expected.

If you are tight on cashflow, you might consider other options such as personal loans, which have lower interest rates and longer repayment periods.

Cash For The Downpayment

One reason many people take bridging loans is because they do not have enough liquidated cash for the downpayment of a new property.

Warning: Using your CPF Ordinary Account (OA) for the downpayment may be a better option. The reason lies in the interest rate:

Your CPF OA has a lower interest rate than a bridging loan.

Besides, getting the money from your CPF means you can avoid some of the bureaucracy associated with applying for a bank loan. And you do not need to have a good credit score to use that CPF.

Principal Amount

The maximum amount you can borrow from a money lender is six times your monthly salary. In contrast, banks will only lend you up to 25% of the property’s purchase price, regardless of how much you earn.

Remember: Do not loan more than you genuinely need, or you will pay a higher loan cost.

Loan Tenure

Bridging loans in Singapore usually have a tenure that does not exceed six months. If you are sure you can sell your former home within this timeframe, then it is an excellent option.

But:

If you are unsure whether you will be able to sell the property in six months or less, it may be best to consider other alternatives, such as refinancing your home loan or taking out a personal loan.

Risk Factor

The key risk when taking a bridging loan is if your former home’s sale falls through. In this case, you may have to settle the loan fully, even if it is just a month’s loan.

Alternatively, the bank or licensed money lender may seize the property you have used as collateral for this bridging loan.

Pro tip: To avoid this situation, ask your money lender about exit clauses and penalties.

How To Lower Your LTV Ratio Using A Bridging Loan

If you are looking for a way to lower your loan-to-value (LTV) ratio, there are two ways in which you can leverage a bridging loan for that purpose:

Use It Towards Your Downpayment

Let’s say you plan to purchase an $800,000 property. The bank grants you 70% of that, meaning $560,000.

The downpayment is $240,000, $40,000 of which must be in cash. Let us say you expect $400,000 in sales proceeds from another property.

• You can take a bridging loan for your loan’s non-cash advance payment (in this case, $200,000). Once the sales proceeds come in, repay your bridging loan and put the remaining $200,000 towards the outstanding balance. Therefore, you are left with a smaller loan to reimburse.

• Use your bridging loan to make a larger downpayment. In this case, you can take a bridging loan of up to $400,000, so the new property’s bank loan will be just $400,000.

Both options lower your interest, tenure, and overall loan costs, but there are disadvantages to both:

• The first option entails potential penalty fees for repaying part of the loan earlier.
• The second option is riskier if the original property does not sell within the time frame.

Pros And Cons Of A Bridging Loan

The primary advantage of a bridging loan is that it offers fast approval and funding, which is ideal if you are amid property transactions.

Other significant benefits are that you can borrow a substantial amount of money and have plenty of flexibility surrounding the repayment.

The main drawback of a bridging loan is the high interest rate.

The other essential concern is that you may have to settle the loan in full if you cannot sell your previous property within the given timeframe.

How To Apply

You can apply for a bridging loan from banks and licensed money lenders. Remember to compare the interest rates and terms first and check if you are eligible for the loan in the first place.

To apply for a bridging loan:

1. Gather the required documents, which may include your CPF statement, income tax returns, payslips, and property sale agreement.
2. Fill up the application form and submit it together with the required documents.
3. The bank or money lender will evaluate your application and get back to you within a few days. If approved, they will disburse the loan amount to your account following a due diligence meeting.

Is A Bridging Loan Right For Me?

A bridging loan is an excellent way to fund your property transactions if you:

• Are certain you can sell your former home within six months
• Are looking for ways to lower your LTV further
• Require fast approval and funding
• Are comfortable with the high interest rate.

If you conclude that a bridging loan is not your best option, 1AP Capital can help you with customised personal loans, emergency loans, and more.

After all, there is nothing worse during a property transaction than making rash decisions.

If you need someone to talk you through your options, contact us now or apply for a loan.