Are you lucky enough to have found your dream home and now ready to sell your old property? We’ve got you covered.
Selling an old property to get money for the new property is not an easy task, especially when you don’t have any downpayment to finance your new property purchase.
The good news is that banks and licensed money lenders in Singapore offer bridging loans to help those who want to buy a property before their current home has been sold.
But it would be overwhelming to take on a bridging loan without first understanding how to calculate bridging loan. Here is all you need to know.
A bridging loan helps you with the downpayment for your new property purchase as you await your old property’s sales proceeds.
In other words, it bridges the financing gap before your old property is sold and when you need to buy a new one. And that is its main purpose – to make it possible to buy a new home before you sell your old property.
Bridging loans are used in other countries, and Singapore is no exception. There are often issues when it comes to the property transaction process. This is why it normally takes longer than you would expect. Thus, you need some funds to cater to the expenses.
In essence, the availability of funds puts you in a position to purchase a new home as you continue to reside in your current home before it gets sold. Unfortunately, bridging finance is tricky to navigate. First, you need to know how much to borrow and how to calculate bridging loan to help you determine if you’re in a position to repay your property loan.
In addition, you have to repay the bridging loan in a short time – typically six months – which means you should choose a lender with favorable terms to get your bridging loan from.
In Singapore, there are many lenders that offer bridging loans, but certainly, not every lender has something tailored to your financial needs.
Some choose banks, while others prefer licensed money lenders. While banks can offer you higher loan limits, they have stricter eligibility requirements compared to legal money lenders.
So if you need fast loan approval, you can opt to borrow from a licensed money lender.
Here are a few things you can do with a bridging loan:
Before you commit yourself to taking a bridging loan from a lender, here are a few factors you need to consider:
Mostly, a money lender will require security or collateral, which will be your property. You and the lender will enter an agreement when you sign the loan contract.
If you fail to honour the agreement, know that the lender may repossess your property. But they must follow the rules as per Singapore’s Moneylenders Act.
Banks charge around 5-6% interest rates per annum for bridging loans. Licensed money lenders charge no more than 4% per month. There is also a late interest rate of not more than 4% per month, which applies to only what you have not paid.
For licensed money lenders, late payment fees will apply, usually not more than $60 for each month. Also, upon your loan approval, you will be charged a fee of up to 10% of the principal loan. If you can’t repay the loan and the licensed money lender makes a successful loan recovery claim, you may incur legal costs. Banks will also charge late payment fees.
Note that the licensed money lender should not charge total fees and charges (interest, late interest payment, administrative expenses) that exceed your principal loan amount.
Before you take up the bridging loan from a bank or licensed money lender, ensure you can repay your loan on time.
Commitment to your monthly repayments puts you in a better position to improve your credit score over time.
In Singapore, licensed money lenders will give you a loan to cover the remaining amount beyond your loan-to-value (LTV) ratio. You can only borrow up to 25% of your new property purchase price, but you must have enough sales proceeds from your old property.
Remember that bridging loans have a short tenure of six months; this is unlike mortgage loans where you can pay for a long period of time. Hence, it is crucial to know if you can afford the repayments and how you will repay.
Banks and licensed money lenders have rules on how much they can lend. The LTV ratio determines how much you can take for your HDB bridging loan. No lender is obligated to offer you the maximum LTV if you have credit score issues.
That’s why good credit scores are vital when applying for a property loan in Singapore. Lenders may have concerns about the location and poor condition of your old property. Thus, they may lower the LTV limit.
With this information, let’s see how to calculate bridging loan and get an estimate of how much you can borrow.
The best way to determine your bridging loan cost would be to use a bridging loan calculator which will provide you with a loan quote. With this, you will have an idea of what to expect when you approach a licensed money lender or bank.
Here is an example to help you assess your ability to take and pay back your loan.
Let’s assume your old property is worth $200,000. You want to purchase a new property whose purchase price is $1,000,000.
You will need to make a downpayment of 25%, of which 5% is in cash. This means you need 20% for the total downpayment.
Here are the calculations for your bridging loan;
Available cash: 5% x $1,000,000 = $50,000
Downpayment: 20% x $1,000,000 = $200,000
Your loan amount: Assuming that your loan limit is 75%, the LTV will be = 75% x $1,000,000 = $750,000.
An option would be to choose to complete your shortfall by borrowing $200,000. With this, you will comfortably have a bridging loan to cater for your new property purchase.
Once you’re aware of your loan limit, and how to repay it, then you can go ahead and apply for a bridging loan.
You will need to give your lender the necessary details. First, you will be required to prove your eligibility which includes being a Singapore citizen, a permanent resident, or a foreigner who wants to sell a property in Singapore.
Next, you will need the required documents. The major ones are the Option to Purchase (OTP) document, and your CPF withdrawal and bank loan statements.
Others include documents such as your proof of income and address or any other document your lender may require.
If you need a bridging loan and don’t know where to start or how to calculate bringing loan, talk to 1AP Credit.
We are one of the best legitimate money lenders in Singapore that recognises that the needs of every customer are different. We can thus advise on what you need.