Bridging loan for EC- Everything you need to know

bridging loan for ec

Table of Contents

Introduction

Purchasing an EC is a major milestone in our lives. For some of us it is meant as a step up from our current HDB flat to a suedo condo with swimming pools and tennis court. For other it could meant taking a step forward to purchase your first dream home.

For either cases there are hurdles we need to cross before we enjoy the fruit of our labour. One of the major hurdle that we will faced is how we go about funding the EC purchase.

To effectively tackle the funding challenges that will arise from purchasing a EC.

It helps to get ourselves acquainted with the following topic.

Focus of this article

In this article, we will dive into the details of EC bridging loan. We will cover everything from bridging loan eligibility, maximum bridging loan quantum, loan tenure to risk associated with bridging loan.

At the end of the article, we will go one step further to summarise the prevailing rate of bridging loan offered by major banks in Singapore.

A little bit about ourselves

Sometimes it is worthwhile to find out who is behind the keyboard, writing this article to ensure that you are not wasting the next 5 mins reading generic info sourced from the inter Web.

We are EC owners ourselves and have personally purchased, profited from selling a EC.

Having experience the benefits of many wise real estate investing decision, we now turn our passion into a full time profession helping our clients purchase their EC

We have since assisted over 56 clients purchase their EC and on average our clients sold their EC with a average profit of $350k upon its 5 year MOP.

What is a bridging loan ?

A bridging loan is a short term loan, built specifically to help property owners bridge the funding gap between the time requirement to pay for the new property and the time lagged from receiving the sale proceeds of the current property.

Technically, there are two types of bridging loan a capitalised interest bridging loan and a simultaneous repayment interest loan. Technical terms aside, the first bridging loan type simply suggest that you will only be paying for the bridging loan interest during the loan tenure and only be required to repay the loan amount upon the sale of the existing property. The latter suggest a repayment scheme which you need to pay down part of the principal together with interest monthly.

But fret not, for the purpose of a bridging loan for EC and any other property type, we will only be paying interest monthly and will only need to repay loan amount upon the sale of existing property

How can bridging loan be applied for EC purchase ?

Bridging loan are mainly used for EC buyers that are holding on to a HDB flat while purchasing a EC.

The bridging loan is used in conjunction with the EC deferred payment scheme. By using the deferred payment scheme, buyer will only be required to pay the initial 20% downpayment for the EC.

The remaining 65% of the loan is deferred till the EC achieve its TOP status and the final 15% is paid 12 months from TOP date, after the EC attain its certificate of statutory completion status.

The bridging loan comes into play when your maximum eligible loan quantum is unable to cover the remaining 80% payment required after the paying initial deposit.

And when the sales proceed from the sale of your existing HDB flat, which was meant to cover the shortfall mention above have yet to be disbursed.

You will then take a bridging loan equivalent to the gap between the eligible EC home loan and the required 80% payment, to first proceed with the EC purchase.

You will then repay the bridging loan using the sales proceed from the sale of your HDB flat.

An illustration of how bridging loan work for a EC purchase

Illustration - Sale of Existing HDB
Existing Property - HDB Flat to be sold
Market value (according to your bank’s assessment)800,000
Recognised market value (80%) - Banks standard practice, only factoring 80% of property's market value for bridging loan assessment640,000
Subtract: Your remaining loan300,000
Less: CPF used + cumulated interest300,000
Cash proceeds40,000
Total sales proceeds (cash + CPF)340,000
New Property - EC to be purchased Value (S$)
Purchase price1,400,000
--
Initial down payment paid during booking phase-
Booking Fee - 5% (cash) 70,000
Downpayment - 15% (cash or CPF) 210,000
Remaining deferred payment to be funded by bank loan, only required when property TOP-
Remaining payment - 80% (cash, cpf or bank loan) 1,120,000
Maximum bank loan base on 30% MSR (mortgage servicing ratio)820,000
--
Gap in funding between Remaining Payment and Maximum Bank Loan (To be funded by Bridging Loan while awaiting sales proceed to flow back from sales of existing HDB flat)300,000

How can a EC buyer be eligible for a bridging loan ?

Right of the top, to be eligible for a bridging loan an EC buyer have got to opt for the deferred payment scheme, and they have got to have an existing HDB flat to be used as collateral.

Aside from that, applicants need to be a Singapore citizen or PR, above 21 years of age.

The following documents will be required to prove your eligibility for a bridging loan

  • Option to Purchase (OTP) documentation for a new property
  • Exercised OTP for your existing property
  • CPF withdrawal statements
  • Latest bank loan statements

What is the maximum quantum of an EC bridging loan ?

The maximum bridging loan quantum should not exceed the sales proceeds of your existing HDB flat less its outstanding mortgage.

Option to use bridging loan to lower your LTV ratio

Given that we have established the maximum loan quantum we can take in the section above. You have got two options to consider when deciding on how much bridging loan you should take.

Only using bridging loan to bridge funding gap

Option 1, referring back to the same example in earlier section.

Assuming you have got a net sales of $340k, comprising of both cash and cpf. And the gap between your eligible mortgage and payment required is only $300k.

You can choose to only take a bridging loan of $300k instead of the full $340k.

Using bridging loan to reduce new EC mortgage loan size and LTV

Option 2, instead of taking a bridging loan of only $300k. You can take the full $340k bridging loan and go beyond bridging the funding gap to reduce your EC mortgage by another $40k.

As a result, this will reduce your overall new EC mortgage by $40k and help reduce overall interest expense.

The sales proceed received from the sale of your property will then be used to later repay your bridging loan.

What is the tenure of a EC bridging loan ?

The maximum loan tenure of a bridging loan is 6 months

What is the interest rate for EC bridging loan ?

Different banks would offer different loan packages for bridging loan. In general the interest rate comes in either fixed rate or floating rate.

For fixed rate, the current rates ranges from 4% to 6%.

For floating rate, the prevailing rates ranges from 3 months SORA + 0.8% to 3 months SORA + 2.4%.

Calculating cost to be Incurred for EC bridging loan

Interest expense for a bridging loan will be calculated in the following manner.

Assuming you are taking a EC bridging loan of $300k at 5% per annum interest and you are looking at a loan tenure of 3 months

The interest expense would be

  • $300k x 5%
  • Divided by 365 days
  • Multiplied by no of days bridging loan is taken (90 days in this case)
  • $3,698

What are the risk involved with a bridging loan ?

The key risk to take note of when taking up a bridging loan is the unforeseen event that the sale your existing property falls through. Under such situation the disbursement of the bridging loan would have to be cancelled.

Normally when this happen there will be a cancellation fee of 1.5% on the bridging loan amount.

To properly mitigate this risk, you would first have to fully understand the penalty for cancellation and exit clause under the terms of the bridging loan, before taking it up.

Next, it will be prudent to market to your existing property for sale in advance to ensure the sale of property take place before bridging loan tenure expires.

Can I repay bridging loan early ?

Bridging loan being a short term loan, does not have any lock in clause. You will be able to repay the bridging loan any time you want.

In fact most property buyers seek to repay the loan as fast as possible to minimise interest expense.

CPF can be used to repay the principal amount for EC bridging loan

You would be able to use either cash or cpf to repay the principal amount for the bridging loan at the end of its loan tenure.

But you can only use cash to repay the monthly interest expense of a bridging loan.

How to apply for EC bridging loan ?

You can work with the realtor representing you for the sale and purchase of your property to source for a bridging loan.

Your agent should be able to provide you with a comparison of the different bridging loan and its respective interest rate in the market.

If you would like to have a comparison of bridging loan interest rate, simply drop us a text.

Bad credit limit could prevent you from being eligible for a bridging loan

If you got a bad credit limit, the banks may not want to offer you the bridging loan.

Major banks offering bridging loan

Bridging LoanType of PropertyInterest RateTenure
DBS EC Bridging LoanEC4.25%Up to 6 months
OCBC EC Bridging LoanEC5%Up to 6 months
UOB EC Bridging LoanEC3 months SORA plus 0.8% annual interest rateUp to 6 months
Standard Charter EC Bridging LoanEC3 months SORA plus 2.5% annual interest rateUp to 6 months

Final Words

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Ut elit tellus, luctus nec ullamcorper mattis, pulvinThis marks the end of our article on everything you need to know about EC bridging loans. We hope this help you gain a headstart in planning for your next EC purchase.ar dapibus leo.

More reads, more gains ?

Kudos on making it this far. The fact that you have invested the last 5 mins reading this article. We believe you are a like minded real estate investor looking to beat the rat race by getting more out of your real estate investment.

If so, do check out the following articles.

Guide to purchasing 2nd property in Singapore
How to avoid ABSD
Decoupling Property Singapore
Sell one buy two strategy
Decoupling EC 

Author

  • Jue Wen

    Jue Wen is the content marketing lead. This means he spend his waking hours researching and writing all things real estate. He believes life is a hustle and there is no joy in grinding away daily in our little rat races. He believes making wise moves in real estate investment can be a game changer. Aside from writing all things real estate, you can find him in your nearest bouldering gym.

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Jue Wen

Author

Jue Wen is the property analyst and content marketing lead at decoupling expertise.
He specialises in helping clients overcome the complexities involved in owning their second private property in Singapore.
He had over 10 years of experience in real estate investing and have written over 40 detail guides on decoupling and minimising ABSD. He is a licensed real estate consultant and holds a Bachelor degree in Business Management from the Nanyang Technological University.

Kenji

Co-Author

Kenji is the Group Division Director of ERA Realty Network.
He have got over 20 years of experience in real estate and have successfully helped over 50 couples purchased their second property. He specialises in helping client achieve the best approach towards acquiring their ideal investment properties while minimising ABSD.