ST : Er, what is a bridging loan?

Sep 5, 2010

FINANCIAL QUOTIENT

Er, what is a bridging loan?



Where do you see this?

In loan documents and property-related articles.

What does it mean?

A bridging loan is a short-term loan with a tenor ranging from a fortnight to a few years.

It provides interim financing for an individual or business till a longer-term financing can be secured.

It is often used for residential and commercial real estate purchases to help close a property deal.

Why is it important?

Bridging loans are typically more expensive than conventional financing to compensate for the additional risk of the loan. On the other hand, they are arranged quickly with relatively little documentation.

Let's assume you need help on the initial cash down payment on your property purchase. A bank can extend a bridging loan to you while you are in the process of selling your HDB flat or private property.

Banks typically allow you to borrow up to 15 per cent of the purchase price or fair market value (whichever is lower) at about 6.5 per cent per annum. The maximum tenor of the loan is typically six months.

During the tenor of the loan, you can choose to service the interest only. You repay the principal amount once you have received the cash proceeds from the sale of your existing property.

So you want to use the term. Just say...

'I plan to buy the condo with a combination of cash, my retirement funds and a $150,000 bridging loan.'

Lorna Tan