Buying a new home while still waiting for the sale of your current property can be financially challenging. A home bridging loan helps ease this transition by providing short-term financing to cover the down payment or purchase cost of the new property before receiving the proceeds from selling the existing one. In Singapore, bridging loans are commonly used by homeowners looking to upgrade or relocate without financial strain, often considering mortgage refinance Singapore options for additional financial flexibility.
How a Home Bridging Loan Works
A home bridging loan is a temporary loan that allows homeowners to purchase a new property while waiting for the funds from their current property’s sale. This loan provides liquidity for buyers who may not have enough cash readily available for the initial payment of their new home.
Once the existing property is sold, the proceeds are used to repay the bridging loan, which is typically short-term, lasting between a few months to a year.
Types of Home Bridging Loans in Singapore
Capitalised Bridging Loan
This type of bridging loan covers the full cost of the new property, including the down payment, while also deferring repayment until the sale of the old home is completed. Once the sale is finalised, the borrower repays the loan in full, along with interest.
Simultaneous Repayment Bridging Loan
With this option, borrowers start repaying the bridging loan immediately while also servicing the existing mortgage. This requires sufficient financial capacity to handle both payments until the old property is sold.
Eligibility for a Home Bridging Loan
To qualify for a home bridging loan in Singapore, applicants must meet the following criteria:
Ownership of an Existing Property: The borrower must have a property that is in the process of being sold.
Confirmed Sales Agreement: Lenders usually require proof of the sale, such as an Option to Purchase (OTP) or a Sales and Purchase Agreement (SPA).
Financial Stability: A stable income and good credit history are necessary to qualify for a bridging loan.
Loan-to-Value (LTV) Limit: The LTV ratio applies, meaning the loan amount cannot exceed a certain percentage of the property value.
Loan Amount, Interest Rates, and Repayment
Loan Amount
Bridging loans typically cover up to 25% of the new property’s purchase price, which corresponds to the cash portion of the down payment.
Interest Rates
Interest rates for bridging loans are generally higher than standard home loans due to the short-term nature of the loan and the increased risk for lenders. Rates can range between 5% to 6% per annum, depending on the bank or financial institution.
Repayment
Most home bridging loans must be repaid within six months, though some banks may offer extensions. Borrowers who opt for a simultaneous repayment bridging loan must make regular repayments until the sale is completed.
Banks Offering Home-Bridging Loans in Singapore
Several banks and financial institutions in Singapore offer home bridging loans, including:
DBS Bank – Provides bridging loans with competitive interest rates and flexible repayment options.
OCBC Bank – Offers short-term financing solutions for homeowners transitioning between properties.
UOB Bank – Provides bridging loans tailored for private property owners looking to secure a new home before selling their existing one.
Pros and Cons of Home Bridging Loans
Pros
- Allows homeowners to secure a new property without waiting for their existing home to be sold.
- Prevents missing out on time-sensitive property deals.
- Provides financial flexibility during a home transition.
Cons
- Higher interest rates compared to traditional home loans.
- Risk of financial strain if the existing property takes longer than expected to sell.
- Requires careful financial planning to avoid over-leveraging.
Conclusion
A home bridging loan is a useful financial tool for homeowners who need immediate funds to purchase a new property before selling their existing one. While it offers short-term liquidity, borrowers must carefully assess their financial situation, interest rates, and repayment timeline to avoid unnecessary financial strain. Comparing different bridging loan options from banks can help secure the most favourable terms for a smooth property transition.
