Bridging loans can be a fast way to get cash for a new property, especially if you’ve got your eye on something specific.
But they come with their own terms – some of which aren’t obvious from the limited information available on official bank websites.
So what do you have to watch out for with bridging loans? Today, I’ll cover 7 misconceptions about them:
Not quite. Think of bridging loans like an add-on to a home loan package: in most cases, banks won’t give you a bridging loan unless you’re also getting a home loan with them.
That means you’re stuck with whichever bank you’re getting the housing loan from. Most banks also won’t post their bridging loan rates online, so it’s hard to compare without talking to them. If you think you’ll need both, be sure to ask about their bridging loan rates when you’re applying for the housing loan.
This depends on the bank. OCBC explicitly states, for example, that “you must only use the bridging loan for payment towards the deposit or downpayment for the property or the legal and stamp duty fees connected with buying the property.”
That means you can’t use it for things like renovation costs or emergencies.
The DBS bridging loan has no such stipulation in their terms and conditions, though technically you’re still only supposed to use the funds for the downpayment.
That said, bridging loans are more expensive with their higher interest rates (usually between 4-6%). It’s also got a short tenure with little to no flexibility in the repayment window, so you don’t want to jeopardise your ability to repay by using the funds for something else.
Your best course of action is to make a list of all the costs you’ll incur with the new property and make sure you have enough cash on hand to cover everything. If you don’t have a comfortable buffer, you might be better off lowering your budget for the new place.
Sure, you can use CPF to pay off the principal loan amount. However, you’ll have to make any interest payments in cash on a monthly basis.
Nope. Bridging loans are contingent on a few things:
Technically true: most banks require just an exercised Option to Purchase or signed and dated Sale & Purchase Agreement showing that you’ve sold your existing property.
But in practice, you can only get a bridging loan on top of a housing loan – and the housing loan requires proof of income (or ability to repay).
Financially, it makes the most sense to borrow as little as possible via the bridging loan.
Compared to housing loans, bridging loans have higher interest rates – sometimes double or triple. The much shorter tenure of 6 months or less also means there isn’t much flexibility on repayment, so it’s best to only borrow what you’re sure you can repay.
Although bridging loans are regulated products, banks still offer them at different price points while still complying with MAS requirements.
For example, the POSB bridging loan has an interest rate of 4.25% per annum. There’s also a late payment fee of “5% above DBS Prime Rate on the overdue amount.”
On the other hand, the Standard Chartered HDB Bridging Loan has an interest rate of 4.475% per annum. (Both figures are accurate as of 5 Aug 2022.)
