How a Bridging Loan Works in Singapore: A Complete Guide

In simple terms, a bridging loan is a short-term loan that helps seal the gap between selling your old house and buying anew one. Let’s look at this: you have a buyer for the old house, but the payments are not yet made. A bridging loan comes in to finance you to avoid losing the new house as the buyer of the old house prepares to pay you. This means that the borrower will be provided with finances itmeets the immediate cash needs.

Of importance to note is that bridging loans offer high-interest rates and must be backed up by collateral, which can be the title deed of the new house or, better still, both houses.

In Singapore, this is a common practice by popular lenders; banks, and licensed moneylenders. While Bridging loans work the same way as any other type, there are key takeaway points worth noting before settling for the loan.

In most cases, the loan is secured against the new property.
You will be required to have proof that you will be able to pay back the loan by the time the tenure ends. For instance, show proof that you are selling your old house.
You will also be asked for detailed information about the new house, including its sales price.
The lenders will ask for the amount of the loan you require to buy the new property and evaluate if you are eligible for it.

How a Bridging Loan Works

Bridge loans are also known as gap financing, swing loans, or interim financing, and they help to cover the gap where there are no finances available, but there is a need to pay for real estate property that is, in ones’ idea, to pay back in a short period. These loans are customized differently based on the borrower’s need and the ability to repay.

Their main aim is to help homeowners secure their new homes as they anticipate selling their old ones. As the borrower awaits the release of funds from the financial organization, they can use the equity from their old house as a down payment and secure the house against being sold to another interested buyer.

By doing this, the borrower will have ample time and peace of mind while waiting for the old house to be sold out. But though these are great advantages, this type of loan carries higher interest rates than other loans available in Singapore.

Reputable licensed moneylenders in Singapore are popularly known for offering this product because of the short processing times compared to traditional banks. One very popular licensed moneylender in Singapore offering these services is Online Credit Pte Ltd. A borrower must prepare the documents, fill out the application forms, and submit them for evaluation and approval. The process will take a few days to complete,and you will have the cash to pay for the new property.

Another critical aspect to note in bridging loans is that borrowers critically check their credit ratings, and borrowers with low credit ratings and low debt-to-income ratios do not qualify for these loans. If they qualify, the lender will roll the mortgages of both houses together such that the repayment burden will not be too high. The borrower will stand a good chance to keep paying for the loan withouta default as they sell the old property. Usually, what lenders do is that they combine the value of both houses and offer a loan equivalent to 80% of the property’s value.But a condition the borrowers must fulfill is that they must have enough cash in hand (Equity) related to the old property before approval of the loan.

There are also instances that you may find businesses applying for bridge ng loans when financial difficulties face them. In this case, they apply for an equity financing loan to cover their expenses for say six months. This is done withthe expectation that they will receive a lump sum at the end of the six months and pay off the bridge loans they took to cater for their daily expenses.

What Difference Exist Between the First Charge and the Second Charge in Bridging Loans

The main aim of a charge is to explain to the lender the debts that are paid first when the old house is sold.

If the old house had a Mortgage to repay, then once the house is paid for, the seller will give it the priority to pay. This is called the secondcharge because it is paid off second.

If you do not have bigger debts to pay, and the only payment you will be making is for paying off the new house, this is called the First-Charge, and the money received from selling the old house will be paid straight to pay off your bridging loan.

Bridging Loans Vs. Traditional Loans

Bridging loans are preferred today because of fast application, quick approvals, and funding compared to traditional loans, which could take longer to process. But to pay off this risk, the loans charge high interest and processing fees and are short-term loans.

In most cases, borrowers go for these loans because of the urgency and will receive funds conveniently; additionally, bridging loans do not haverepayment penalties, which are present in traditional loans.

Are there Risks Associated with Bridging Loans?

The borrower expects to sell their old property in time to pay off the bridging loan. But the risk exists in that if the house does not sell during the anticipated period, chances are that the new house will be repossessed, and you will lose it as fast.

What Alternatives are There to Bridging Loans?

Because bridge loans are short-term loans, one stands to strain a lot when it comes to repayment. However, other alternatives can ease one’s burden, and these include;