What Is a Bridge Loan and How Does It Work in Singapore

For Singaporean homeowners upgrading or relocating, a bridge loan offers a short-term financial solution to secure a new property while selling their existing one. This guide explains what a bridge loan is, how it functions in Singapore, its pros and cons, and available alternatives.

Key things to know about bridging finance: Short-term loan for buying before selling property. Typically up to 6 months via Singapore banks. Useful for HDB to private property upgrades. Requires OTP and proof of intent to sell.

» Read more: Tips for first-time home buyers

A bridge loan is a short-term financing solution designed to "bridge" the financial gap for Singaporeans who have committed to purchasing a new property but have not yet received the funds from the sale of their existing one. Commonly offered by banks in Singapore, these loans provide temporary capital to manage the initial costs of a new property, facilitating transitions such as upgrading from an HDB flat to private housing. Securing a residential bridge loan typically requires a valid Option to Purchase for the new property and proof of your intention to sell your current home.

» Read more: 6 ways to increase the value of your home before selling

In Singapore, bridge loans function by leveraging your existing property as security. Banks provide you with a loan based on its assessed value, with the expectation of repayment once the sale is finalised.

There are two primary ways a bridge loan operates. One method involves capitalising the accrued interest, which is then repaid along with the principal after your current property is sold. The other method requires you to make simultaneous repayments on both your existing home loan (if any) and the bridge loan until your current property is sold and the bridge loan can be fully settled.

To apply for a bridge loan mortgage in Singapore, banks typically require documentation such as your CPF records, the Option to Purchase for the new property, and proof of your outstanding home loan balance. The repayment of the bridge loan occurs once the sale proceeds from your existing property are received. These loans in Singapore are structured for a short term, generally up to six months.

Advantages and disadvantages of bridge loans

Benefits 

• Allows Singaporean buyers to quickly secure a new property without waiting for their current home to sell.

• Helps avoid the hassle and expense of temporary accommodation during property transitions in Singapore.

• Useful for aligning different timelines when selling an HDB flat and buying private property.

Drawbacks

• Comes with higher interest rates compared to standard home loans in Singapore (around 5–6% p.a.).

• The short repayment timeframe (typically up to 6 months) can be challenging if your property sale in Singapore is delayed.

• Availability is limited to certain banks in Singapore, and eligibility criteria can vary.

Scenarios where a bridge loan is useful

Here are some common situations in the Singaporean property market where a bridge loan can be a valuable tool:

• When moving from an HDB flat to a private property and needing funds before your flat is sold and CPF/cash proceeds are received.

• To ensure a smoother transition between selling your current home and moving into a new one, avoiding double moves.

• When you require the initial down payment for a new property before your CPF or sales proceeds from your existing home are available.

• To prevent the inconvenience and cost of renting temporary accommodation between selling and buying.

When considering a bridge loan in Singapore, it's important to compare offers from reputable financial institutions. Several major banks here provide these loans, including DBS and UOB, which offer options for both HDB and private properties. Other banks like OCBC, Standard Chartered, and Maybank also offer bridge loan solutions with varying features and eligibility requirements. Always review and compare the terms and conditions to find the best fit for your needs in Singapore.

» Read more: Best home loans in Singapore

While bridge loans can be helpful, there are alternative financing options to consider for your property transition in Singapore:

Home equity loan: This could be a viable option if your current property in Singapore is largely or fully paid off, allowing you to borrow against your existing equity.

» Read more: What is a home equity loan?

Personal loans: These offer fast approval but typically come with higher interest rates compared to secured loans and are not specifically designed for large property-related costs.

» Read more: Types of personal loans

CPF housing grant / HDB contra payment facility: For those moving between HDB flats, the CPF Housing Grant and the HDB Contra Payment Facility allow you to use CPF grants and the proceeds from the sale of your existing flat to fund the purchase of your next HDB flat. 

Bank overdrafts: While they might help with temporary cash flow shortfalls, bank overdrafts are generally not ideal for financing large property-related expenses due to potentially high interest rates and their short-term nature.

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