What You Need to Know About Bridging Home Loans

Buying your dream home is always exciting. You are finally trading your old house for a home that you have always dreamed of owning and living in every single day of your life.

You’re so caught up in the excitement that you have completely forgotten that you have not yet received the sales proceeds from your old house. The offer on your dream home is closing soon and you do not have enough down-payment to afford it!

This is literally like you are trying to step into your home but the door is locked and you don’t have the key. Under this circumstance, your bank can even refuse to extend the loan to you. This is like being caught between a rock and a hard place.

However, fear not. You can get out of this situation. How? With a bridging loan!

What is a bridging loan?

A bridging loan is a short-term loan offered by a bank, which will serve the purpose bridging the monetary gap between the sale of your old house and the purchase of your new home.

These loans are designed to tide you over until you receive the proceeds from the sale of your old house. In some cases, it also includes until you find a suitable buyer for your property. These loans are a short-term financing solution that is meant to be fully repaid within 6 to 12 months.

A bridging loan can be used for more than just purchasing a new home. A bridging loan can also be used to renovate your home while waiting for approval on your mortgage application.

What you must know before you take a bridging home loan

You can apply for a bridging home loan by providing your Option to Purchase document. Also, many banks that provide home loans/mortgage loans also provide bridging loans. This will help ensure a smooth transition from moving out of your current home to a new home.

Bridging loans shouldn’t be your first option as they can be quite expensive. These loans come with relatively higher interest rates and fees. Coupled with their short tenures, it can drill a hole in your wallet.

Types of bridging home loans Singaporeans can apply for

There are two types of bridging home loans that Singaporeans can apply for.

1. Capitalised interest bridging loan

In this type of financing, the bank will finance the whole amount of your new house and your repayment for the bridging loan will be activated after you finish selling your current property. Over the period of your bridging loan, interest will be accrued on your principal loan amount and you will have to repay the principal amount + the interest on the loan.

2. Simultaneous repayment bridging loan

In this type of financing, you will have to make simultaneous repayments for both your home loan as well as the bridging loan. You will be given a leeway period of 12 months so that you can sell off your property. You will be required to provide your financial documents as proof to show your commitment towards making timely repayments.

Of course, you need to do your own research regarding several factors concerning each bank’s policy of home loans and bridging loans. You need to know things like restrictions that some banks impose on the number of lump sum payments you can make at a time.