We Advice On:
Utilise a bridging loan with your housing loan as a last means due to the high interest costs.
A bridging loan is useful for a contra transaction where you are selling your existing property and buying a new property at the same time. It comes into play when the cash/CPF proceeds from your selling property are not realised in time for the down payment required for your purchase.
Let’s look a simple example of Gary who is selling his HDB unit due for completion on the 1st of March. At the same time, he is purchasing a condo unit due for completion on the 6th of March. He has no CPF funds and is looking to use the CPF proceeds from his sale for his new purchase.
At a first glance, you would think that since there is a 5 days gap and since cash proceeds are paid in a cheque, its more than enough time for the cheque to clear so that the cash can be used towards the down payment for the new property.
But what about CPF proceeds?
The CPF proceeds take approximately 10 to 14 days to be deposited into your OA account. This would mean that Gary would either have to pay his entire down payment in cash or extend the completion of his purchase (this leads to uncomfortable conversations with your agent).
But with the option of a bridging loan, Gary can now take a short term loan from the bank for the CPF portion of his down payment and pay the bank back the loan using the CPF proceeds from the sale of his property once they are deposited into his OA account.
The general rule of thumb we like to follow is having a 3 weeks gap between the completion of your selling property and the completion of your buying property. This ensures that a bridging loan can be avoided and there will be sufficient time for cash/CPF proceeds to be used for your new property.
Talk to our mortgage consultants who will study the timelines for a contra transaction and advice you on the best course of action to take.
A bridging loan comes with certain conditions like high interest rates (usually at 2% above prime) and a maximum validity of 6 months.
The conveyancing fees involved in a property transaction consisting of a bridging loan are also higher. We assist with engaging a law firm with reputable familiarity in conveyancing for a bridging loan due to its’ complex nature.