If you decide to sell your home so that you can afford a new one, you may experience a period of homelessness, especially if you run into some monetary problems. Maybe you are yet to receive the proceeds from your old house, or the bank has not approved your loan. In such case, you will need to look for a place to live for a short period of time. You can decide to rent an apartment or live in a hotel until you can move to your new home. A bridging loan can help you to “bridge” this gap between the sale of your home to the purchase of a new one.
A bridging loan allows you to borrow up to 15 percent of the value of your new home. The loan comes with a six-month tenor. When applying for a bridging loan, you need to provide your Option to Purchase document. The document is the contract for your new property that gives you the right to that home. Most banks that offer home or mortgage loans also provide bridging loans. However, you cannot apply for a mortgage and a bridging loan from different banks.
A bridging loan often comes with an interest rate of around 5% to 6% per annum. Most banks allow you to service the interest during the tenor, and repay the rest of the money after receiving the proceeds from your old property. Bridging loans are often expensive since they come with high-interest rates and fees. Make sure you consider the tenor length, interest rate, and expenses before applying for a bridging loan. There are two types of bridging loans to choose from: capitalized interest and simultaneous repayment bridging loans.
Capitalized Interest Bridging Loan
The repayment of this bridging loan is activated after you receive the proceeds of your original home. The bank then finances the entire amount of your new property. The interest rate accrues over the tenor period.
Simultaneous Repayment Bridging Loan
In this type of bridging loan, the bank demands that you make payment of both your new property and bridging loan at the same time. The bank provides you with a 12 month period in which you are expected to sell your old home and repay the loan.
Singapore is one of the most expensive countries in the world. As such, you need to ensure that you get the cheapest bridging loan available in the market. Choose a financial institution that does not strain your finances and at the same time, allowing you to get your dream property. Make sure that the amount your bank is offering is sufficient to avoid topping up. You should also consider your Total Debt Servicing Ratio (TDSR) when applying for your loan. TDSR is a government framework in Singapore that keeps your loans and balances in check. The structure calculates the percentage of your income that goes into repaying your loan. if your TDSR is at 40%, no more than 60% of your income should go to debts.
For more information, you can visit Bridging Loan in Singapore.