Bridging Loan Vs. HELOC in Singapore: Which is Better?

Purchasing a new property, whether it is your first or your second time around, takes careful planning and decisiveness. Further, you’ll also need to consider your budget and find an excellent financial tool to cover renovation or down payment costs. 

Bridging loans and HELOCs are two popular short-term financing options that you can consider for property purchases in Singapore. While both are widely used in the real estate industry, they work differently and are not a one-size-fits-all option.

Read on to understand how these two loans work and what option is right for you. After all, a property upgrade is a good investment, it only makes sense to put due diligence and find only the best loan deal.

Bridging Loan Vs. HELOC

Bridging loans and HELOCs are short-term financing options backed against the borrower’s home property. The key difference between a bridging loan and HELOC is how funds are used. Given this, bridge loans are often used when buying a new property and selling an old one. Meanwhile, HELOCs can be used for purposes other than a home purchase.

Differences Between a Bridge Loan and a HELOC

Let’s take a closer look at some of their main differences:

	Bridging Loan	HELOC
Loan Amount	Banks: Up to 75% of LTV Licensed Moneylenders: Up to six times of monthly income	Depends on home equity
Loan Tenure	Banks: Usually, 6 months to two years Licensed Moneylenders: one month or until the property’s completion date	Varying terms – can be paid up to 30 years
Condition	Banks: with collateral (at least 20% of property’s equity) Licensed Moneylender: no collateral	With collateral (at least 20% of property’s equity)
Interest Rate	Banks: 5% to 11%  Licensed Moneylender: 1-4% (Charged on the full amount)	Varies – charged on the drawn amount
Limitations	Single purpose	Can be used for many purposes
Disbursement	Lump sum	Revolving credit
Other Fees	Banks: May include closing fees and other fees Moneylenders: Not exceeding 10% of the principal loan amount when the loan is granted (one-time only). Late repayments: Maximum of $60 per month	No closing costs

1. Loan Tenure 

While both are considered short-term financing options, bridge loans generally have shorter terms than HELOCs. Most banks will offer it with a tenure of six months. HELOCs have a more flexible repayment period and can last up to 30 years, depending on the lender.   

Alternatively, licensed moneylenders also offer bridge loans that may be paid in as short as a month or until the property’s completion date. 

2. Interest Rate

As bridge loans are to be repaid in a shorter period, most banks impose a higher interest rate between 5 to 11%, and 1-4% monthly with licensed moneylenders. HELOCs have variable interest rates and may also fluctuate depending on market conditions.

3. Limitations on Use

Bridge loans are less flexible than HELOCs regarding the use. Bridge loans are limited to single purchases such as home down payments. HELOCs are not limited to home purchases and funds may also be used for other purposes such as debt consolidation, educational funds, home repairs, and many more.

4. Disbursement

Bridge loans are disbursed one time in a lump sum amount. With HELOCs, you can draw funds from your available credit as needed during the draw period, which is usually ten years.  

Bridging Loan – Best for Paying Down Payment Costs

Bridging loans are a short-term type of financing that is often used when buying a second property. Usually, the term can be anywhere from six months to two years. While this loan is secured against collateral, banks will still look at other factors such as credit score and debt-to-income ratios.

Bridging loans from licensed moneylenders could be a great alternative if you don’t have a good credit score. Moreover, no collateral is required and you can get up to six times your monthly income.

When is a Bridge Loan Useful?

A bridge loan may come in handy for homebuyers who are in the process of selling their former home. With a bridge loan, you do not have to wait for the sales proceeds to become available before moving into your new home. It is also useful in securing great property deals where time is of the essence, such as in auctions.

Pros and Cons

Bridge loans come with some benefits and drawbacks. Here are a few to look into:

Pros

• Fast Approvals – Bridge loan applications can be closed under a week and allows savvy property investors and homebuyers to secure great property deals.
• Flexible Repayment Terms – Bridge loans are typically due when the old home’s sales proceeds are received. Some lenders may allow the loan terms to be extended. 
• Contingency – You can move into your new home while still selling your old home.

Cons

• Higher Fees – A bridging loan’s speed and short-termed nature come with higher fees. The overall cost with the bank is also higher as it may come with closing fees, appraisal fees, legal fees, and more.
• High Risk – Not being able to sell your property on time may cause problems with one’s finances. Should a borrower default on the loan, the lender may take quick actions like a foreclosure notice.
• Uncertainty in the Sale of the Property – It could happen that the old property will not be sold within the allotted time frame.

How to Apply?

From Banks:

Eligibility and Requirements:

Those who are eligible to apply are Singapore Citizens (SCs), Permanent Residents (PRs), and Foreigners who are in the process of selling their property.

• Must be at least 21 years old

Key Requirements:

• NRIC (for SCs and PRs)
• Passport (for foreigners)
• HDB flat and financial information
• Option to Purchase (OTP)
• Valuation reports
• Letter of Offer 
• Proof of Income: CPF statements, latest payslips
• Outstanding bank loan statements

Quick Steps:

1. Prepare documents (PDF download).
2. Upload these documents to your bank’s website.
3. Process your loan online and wait for approval. This process may take more than a week, depending on the bank or financial institution.

From Licensed Moneylenders:

Eligibility and Requirements:

Eligible applicants: SCs and PRs  who are in the process of selling their property.

• Must be at least 21 years old
• Income Requirement: Minimum of S$2,000 

Document Requirements:

• NRIC
• SingPass (will be used to login to CPF, HDB, IRAS)
• Proof of Residence (utility bills addressed to borrower or tenancy agreement)
• Copy of OTP
• Proof of Income (Letter of employment or latest three months payslips)

Quick Steps:

1. Apply online via the moneylender’s official website or visit their office.
2. Wait for a scheduled appointment.
3. Visit the licensed moneylender’s office.  

HELOCs – Best for Home Renovation Purposes

A Home Equity Line of Credit (HELOC) is ideal for borrowers who do need to borrow a significant amount for one-time use. It is best for home renovation purposes such as kitchen and bathroom remodeling, landscaping, new roofings, and more. 

When is a HELOC Useful?

HELOCs are ideal for property buyers and investors who are looking into renovations. With a HELOC, the borrower can borrow a percentage of the property’s equity with lower interest and fewer fees involved. Thus, it could be a great source of funds for renovating your property and increasing its value before putting it up for future sale. 

Pros and Cons

Like bridge loans, HELOCs also come with a set of benefits and drawbacks.

Pros

• Extended Tenure – Allows borrowers ample time to repay the loan. The draw period is an excellent feature as it allows borrowers to make interest only payments and draw funds as needed and budget accordingly.
• Lower Interest Rates – You will only pay interest on the amount drawn.

Cons

• Overspending – Borrowers may borrow more than what they need or make impulse purchases. 
• Complex Application Process. Banks require tedious documentation and requirements during the application process.

In a nutshell, a bridging loan and a HELOC can be helpful to property buyers, depending on their needs. Bridge loans are best for homebuyers waiting for sales proceeds to be completed. On the other hand, HELOCs are best for home improvement and other variable needs.

How to Apply?

As of today, major banks in Singapore have temporarily stopped offering HELOCs. This reason is due to unpredictable property market conditions brought about by the pandemic.

Another Option: Personal Loans

Another alternative to consider is a personal loan. Most banks in Singapore offer personal loans. However, they will take a good look at your credit score and creditworthiness as a basis for approval. 

If you don’t have a good credit score, you can consider approaching a licensed moneylender for a personal loan offer. There are no credit score requirements and loan applications are processed and approved within the day.  Find out more on the differences between Personal Loans and Bridging Loan.

How to Apply?

Eligibility and Requirements:

Banks: 

• Must be at least 21 years old
• Minimum annual income of S$20,000
• NRIC
• Latest CPF statements
• Notice of Assessment

To Apply:

1. Log in with your preferred digibank online/through its mobile app
2. Choose the desired amount and loan tenure.
3. Submit your application online and wait for the approval.

Licensed Moneylenders:

• Must be at least 21 years old
• Minimum monthly income of S$1,500 for Citizens and Permanent Residents and S$2,000 for Foreigners

To Apply:

1. Apply online through the licensed moneylender’s website.
2. Wait for your scheduled appointment.
3. Loan officer will verify documents during the face-to-face appointment.  
4. Loan applications will be processed and may be approved quickly within the day.

Closing

Choosing between a bridging loan and a HELOC ultimately depends on where the funds will be used and the borrower’s preferences. Whatever option you choose, ensure that there is always proper financial planning. Understanding the terms and conditions is crucial as both loans are backed against your hard-earned property.

• Bridging loans in Singapore are perfect for homebuyers who are sure to complete the sales of an existing property within the loan tenure.
• HELOCs are best for variable yet essential expenses. 
• Avoid using a HELOC for daily living expenses as your property is on the line.
• Licensed moneylenders are a great alternative to getting bridge loans since they require no collateral and offer fast loan application approvals and disbursals of funds.

Need an urgent boost in your cash flow? A1 Credit, among other licensed moneylenders, offers flexible and competitive loan packages to suit your current needs. Visit our website and get your free loan quote today!