Guide To Calculating A Bridging Loan

Make sure to cover all key aspects when making your calculations for a bridging loan.

When you are buying a new property, there may be a time gap between when you sell your old one and when the new one is ready to move into.

During this time, you will need to finance your housing costs somehow. A bridging loan can be a great way to do this, but it's important to understand how they work before you apply.

When calculating the costs of a bridging loan, it's also essential to consider all financial aspects, including repayment terms, interest rates, and any associated fees. Additionally, be mindful of your existing financial commitments, such as personal loans or home loans, as they can impact your ability to secure favourable bridging loan terms.

Understanding the interplay between these factors will ensure you make informed decisions about your financing options.

This guide will help you understand the kind of bridging loan you need and how much it will cost. 

What is a bridging loan?

A bridging loan is a short-term solution for people who need additional funds to buy a new property before selling off the old one. This kind of loan allows you to move into your new home before finalising the sale of your property.

A bridging loan is meant to be paid off after a short period, and it's therefore important to assess your capacity to pay it off.

More on this topic:
How Much Do You Need To Buy Your First Home In Singapore?
How Some Singaporeans Buy A House Without The Bank’s Help
How Do HDB Home Loans Work?

How to calculate a bridge loan?

Calculating the bridging loan will help you determine the cost in advance, and you can make an informed decision. Before we get to that part, here are a few definitions you should know.

Net loan amount

This is the amount you will receive in your bank account after applying for a loan. It’s the net after processing fees and other application costs.

Gross loan amount

The gross loan amount is the principal amount plus the interest. It’s the amount you will pay at the end of the loan tenure.

Loan tenure

It’s the period or number of months over which you will need to pay the loan.

Monthly interest payment

The monthly interest payment is the amount you will pay at the end of every month. The amount depends on the loan tenure and the borrowed amount.

Loan-to-value ratio 

The loan-to-value ratio is the amount set by the Monetary Authority of Singapore that you are allowed to borrow to finance the purchase of your home or property. Banks have an LTV of 75%, while HDB allows an LTV of 85%.

Calculating the bridge loan will help you assess your capacity to pay back the loan. It also gives an idea of what burden, if any, exists in case the sale of the old property delays or fails. The bridging loan calculations give you the following information:

• How much can you borrow?
• The amount you will pay back
• The cost of the bridging loan
• Interest rate

The amount of bridging loan you can access depends on several factors such as income, loans you are paying and the value of your property.

Factors to consider before taking a bridging loan

Before you take on a bridging loan, consider the following factors: 

Total cost of the bridging loan

It's important to compare the cost of taking the bridging loan. Get details on processing fees and other costs you are likely to incur when signing up for the loan. Compare the interest rates, processing fees, and other charges that various banks are offering and choose the best.

Loan tenure

Before you take the bridging loan, ask about the loan tenure. Make sure there’s enough time to complete the sale of your property.

Monthly repayment

You need to make sure that the monthly repayments are not too high. In case the sale is delayed, you can handle the payments.

State of the real estate market

Before you sign up for the bridging loan, assess the market and ensure that your property will not be devalued.

Calculating the bridging loan

To get the accurate cost of a bridging loan, make use of a bridging calculator online. The bridging loan calculator will give you the exact cost you incur, the net amount you will receive, the tenure, the monthly repayment, and the gross loan amount.

The bridging calculator gives you a bridging loan quote, showing you what you can expect when you visit the bank. You can then compare the costs of loans from various banks and choose one that suits you.

Read these next:
Home Loans In Singapore (2022): Best Mortgage Rates To Consider
Getting A Bank Loan For HDB vs A HDB Housing Loan – What’s The Difference?
Should I Use CPF Or Cash To Finance My Home?

Bridging loan options

Bridging loans provide you with a quick solution when you want to own property fast. However, you need to make sure that you get the best deal. We’ve compiled some of the best options below. 

DBS Bridging Loan 

• Short term loan of up to six months 
• Applicable for purchase of all property types 
• Interest rate pegged to Prime Rate 
• Only pay interest on bridging loan during loan period; make full payment upon receiving sales proceeds from property 

UOB Bridging Loan

• Short term loan of up to six months 
• Applicable for purchase of all property types
• Interest rate of between 4% to 5% 
• Repay principal amount in full after loan period using cash or CPF 

Standard Chartered’s HDB Bridging Loan 

• Short term loan of up to six months 
• Applicable for purchase of HDB flat (from HDB or resale market) 
• Interest rate of 3M SIBOR plus 2% p.a. 

If you’re thinking of purchasing a new home, choosing an appropriate source of funding is critical. Compare the best home loans and sign up for the one that suits your needs.