The median price of a home in Singapore is around S$495,000. The country’s average monthly household income is around $12,380. For many Singaporeans, one of the biggest things to worry about is the issue of high residential prices.
Rising prices have led some people to consider selling their homes so they can move somewhere more affordable. But if you have a property whose value is still going up, consider getting a bridging loan Singapore.
What Is A Bridging Loan?
When your property is not ready to be sold yet – say, because it’s still being constructed – you can borrow money from a bank using your home as collateral.
The term “bridging” comes from the fact that this loan bridges the gap between buying and selling your house. In simple terms, bridging loans give you access to cash until your property is ready for sale.
How Much Can You Get?
More than 200 banks offer banking services in Singapore. The borrowing amount depends on the lender and the value of your home. You might be able to get a bridging loan for up to 90% of your property’s value, although 50% is more common.
However, this is not a regular personal loan. So there are special considerations that need to be taken into account when borrowing money using your home as collateral.
For example, if you fail to repay this type of loan according to the conditions set out by the bank, they may instruct you to sell off your property – even if it has not been completed yet.
How Long Can You Borrow?
The average bridging loan interest rate in Singapore is between 4% and 6%. Typically speaking, you can take out a bridging loan in Singapore for a maximum of two years. However, this could vary depending on the terms and conditions set out by your bank.
What Are The Benefits Of Bridging Loans?
There are several reasons to take out a bridging loan :
- It’s fast
- You can access these funds almost instantly
- It’s flexible
- There is no fixed repayment schedule or timeline; you can repay it as soon or as long as you like (although banks prefer that their borrowers pay back quickly)
- Your regular home loan will not be affected
If you decide not to sell once your property is ready, you won’t need to start repaying the bridging loan. You might get discounted interest rates if your house value has gone up.
Your home is used as collateral for this loan. If you default on a payment or repay it completely, the bank can instruct you to sell off your residential property to recover their money. However, there are also some downsides to taking out a bridging loan.
Bridging loans have higher interest rates than standard mortgages because the risk is relatively high. For example, suppose you live in an area where house prices have fallen over the past few months. In that case, borrowers may end up losing money.
So banks tend to charge more to compensate for this risk. Owing to this, you might find yourself having to settle for a lower loan amount than you would like. This type of loan is generally unavailable through online banks or your usual bank, so you might have to apply with a different lender.
Why Would A Bridging Loan Be Better Than Just Selling Your Home?
It’s easy enough to sell off your house if you want cash as soon as possible, but that will have an impact on your net worth.
If it does not take more than three years to recover the original amount you received from the bank plus any profit from selling the new house, then it might make sense to go ahead with the bridging loan instead.
Summing Up
To sum up, a bridging loan can be beneficial in certain situations when you need to raise money quickly while your property is still under construction. This type of loan is beneficial for anyone going through a crunch while invested in a construction project or looking to profit from their prospective property.
