EXECUTIVE CONDOMINIUMS

EC Deferred Bridging Loan Explained

For New Launch Executive Condominiums under DPS Scheme

14 May 2023

Introduction

If you are looking to purchase a New EC, a fundamental aspect of the purchase process lies within the payment structure, in particular, the NPS and DPS Payment Schemes:

See : Executive Condo NPS and DPS Payment Schemes Explained

If you are intending to take on the DPS Payment Scheme, you might need to apply for a Deferred Bridging Loan to make up any shortfall in funds for the purchase.

In this article, we take a look at what the Bridging Loan is, how it works in the financing of your New EC purchase and how the repayment works.

By the way, going by its name, the Deferred Bridging Loan is a loan mechanism that exists only for the DPS (Deferred Payment Scheme), and is not applicable for the NPS (Normal Payment Scheme).

As we will see in the following examples, the Deferred Bridging Loan is a way for buyers to leverage the Cash/CPF value of their current HDB on hand to complete the financing structure of their New EC Purchase, especially in scenarios in which they would like to use their CPF OA on hand for the first 15% payment tranche upon Signing S&P.

Scenario 1 : DPS Payment Scheme, Deferred Bridging Loan Not Required

Let's first begin with a scenario in which the Deferred Bridging Loan is not required.

In the illustration below, the buyer of a New EC taking on the DPS scheme has sufficient cash funds to pay the first 20% of payment.

As for the BSD and Legal Fees, these are the peripheral payments and can be paid for in Cash or CPF.

The buyer will only utilise their CPF funds in the 65% payment tranche at TOP.

Scenario 2a : DPS Payment Scheme, Deferred Bridging Loan Required

Now for Scenario 2a, in which the Deferred Bridging Loan is required.

The need for a buyer to take on the Deferred Bridging Loan comes in when they want to utilise their current CPF OA Funds on hand to pay for part (or all of the 15% payment upon Signing S&P).

In order to use CPF OA Funds, the CPF Board requires that all the remaining payment tranches are accounted for, i.e. the CPF Funds are not used as a temporary stop gap measure.

This means that the calculation of the financing structure must be done from the bottom-up.

• First, to calculate the amount of mortgage loan that the buyers are eligible for
• Second, calculate the amount of Bridging Loan that they are eligibile for
• Next, is their current CPF OA Funds on hand
• And any shortfall of funds at the start needs to be covered using Cash

The sequence of financing must be Cash --> CPF --> Bridging Loan --> Mortgage Loan.

Scenario 2b : DPS Payment Scheme, Deferred Bridging Loan Required

Now lets take a look at Scenario 2b, a slight variation of Scenario 2a, and which might be more applicable for most buyers.

Keep in mind the fact that the financing structure is calculated from the bottom-up:

• First, to calculate the amount of mortgage loan that the buyers are eligible for
• Second, calculate the amount of Bridging Loan that they are eligibile for
• Next, is their current CPF OA Funds on hand
• And any shortfall of funds at the start needs to be covered using Cash

In this Scenario 2b, we assume that after calculating the Buyer's Mortgage Loan and Bridging Loan, there is another shortfall of 10% payment at TOP.

And the buyer's current on hand CPF OA is sufficient for only 15% of the total unit price.

It is important to emphasize that the CPF used here pertains to the total CPF OA funds the buyers have on hand at the moment they are using it to pay for any of the payment tranches.

It cannot include the CPF due to return to them upon selling their HDB, which is where the Bridging Loan will come in.

So for Scenario 2b, again keeping in the mind the bottom-up approach and the sequence of financing to be Cash --> CPF --> Bridging Loan --> Mortgage Loan,

• Buyers will end up splitting their CPF OA On Hand across 2 payment tranches - one portion at the 65% payment at TOP, the other portion for the 15% payment upon Signing S&P
• This leaves a total of 15% shortfall of funds at the beginning, which needs to be paid for with Cash

Deferred Bridging Loan Invalid Use Case

At this juncture, you might be thinking, in the event that a buyer does not have sufficient funds for the first 20% payment of the unit, whether he/she can utilize the Deferred Bridging Loan to cover part of that payment.

The answer is no.

The Deferred Bridging Loan can only be used at the deferred portion of the payment, meaning at the 65% payment tranche of the financing structure.

Calculating Deferred Bridging Loan Amount

The actual calculation for the amount of Deferred Bridging Loan that a buyer can get needs to be referred to a banker; and at the same time, the various local banks calculate the Deferred Bridging Loan in different ways.

The illustration below shows one such example of the Bridging Loan calculation.

A few key points :

• The valuation of the Buyer's HDB will be assessed by the bank; however you can check the HDB One Map Housing feature for resale prices around your home area
• There is an 85% factor (which can be 80% for some other banks) multipled to the valuation as the bank is accounting for any possible drops in valuation in the future
• The Outstanding Loan for the Buyer can be either a HDB Loan or Bank Loan
• The Resale Levy is payable only for Second Timer Buyers
• Given the formula for calculation, you can see that the Deferred Bridging Loan is essentially a way to leverage both the Cash and CPF funds returning from the sale of the current HDB to finance the future payments of the New EC Purchase

Calculating Mortgage Loan

To calculate your mortgage loan, download our FREE Excel calculator and watch the video to follow along!

Conditions for Using Bridging Loan

• The Deferred Bridging Loan needs to be taken up along with a Mortgage Loan; it cannot be taken up on its own, as a standalone
• The Deferred Bridging Loan is not meant to be in effect for more than 6 months; i.e. borrowers are expected to repay fully the Deferred Bridging Loan and the incurred interest within a 6-month period
• In order to Activate/Trigger the Bridging Loan, it is required to obtain the Approval Letter from HDB for the sale of the HDB on hand
• It is advisable to start selling the current HDB on hand within 6 months before the new EC TOP, so that the Approval Letter will come in in time to activate the Bridging Loan 
• The Deferred Bridging Loan is activated together with the Mortgage Loan at TOP
• The Deferred Bridging Loan interest can vary from bank to bank and you'll definitely need to cross check with a banker, however, a general guide is 3m SORA + 1% per annum
• Some local banks calculate interest in blocks of 30 days, whereas  some banks calculate the interest on a per day basis, depending on how many days the Deferred Bridging Loan was owed
• In the event that the Bridging Loan is not required and cancelled, there will be an admin fee imposed by the bank - check with your bank on how much this fee will be

HDB Processing Timeline for Resale Transactions

In order to plan for the sale of your HDB to be in time for the Bridging Loan to be activated, it is important to under the various checkpoints in the HDB Resale Transaction Process

• Issuing of OTP to a buyer (followed by obtaining a Valuation Report)
• Exercising of the OTP with a payment of $4,000
• Uploading to the HDB Resale Portal
• HDB notification that Application has been accepted
• HDB sends out Approval Letter
• Final appointment at HDB Office and handover of the unit and keys

Timeline for Bridging Loan Triggered and Repayment 

For a closer examination of the timeline for selling your HDB and activating the Bridging Loan, in the following diagram both these timelines are placed side by side for ease of reference:

• Take note that the HDB Approval Letter needs to be ready in order for the Bridging Loan to be activated
• This means that the selling process for the HDB on hand needs to start up to 6 months ahead of the EC TOP
• Once the new EC has reached TOP, both the Bridging Loan and Mortgage Loan will be activated
• At the final appointment for completion of the HDB Resale transaction, the cash profit from the HDB sale will be given to the sellers
• However, the CPF returning to their account can within 15 working days
  • See : How long does it take to process the refunds from sale of my property to my CPF account?
• Once the CPF funds are returned, the borrower can fully pay off the Bridging Loan
• The interest incurred will depend on the number of days from when the Bridging Loan was discharged to when it was fully paid; however do note that some local banks calculate interest in blocks of 30 days, whereas  some banks calculate the interest on a per day basis

Hope the above was helpful!

The EC Deferred Bridging Loan is quite a complex process, so if you need more help, please contact us.

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