You've Got A Progressive Interest
Progressive Interest and Billing Explained
Category: Pt 4: The Last Hurdle | Tags: Bank, Construction, Finance, Loans, The Journey
Buying a property that’s under construction is one of the best ways to get a great deal. It’s because when you buy a unit in an early phase of the project, you’ll get it at a great price! After the next phase is launched, the price of a home can increase by 15% to 30%.
Nonetheless, the loan process is a little more different than when buying a completed house - where your bank will have to release the full loan amount upfront. This is because the payment for a home that’s under construction is progressive, i.e. in stages.
Essentially, how it works is-
When the developer has completed a certain stage of the building process, your bank will release a bit of money to pay them. These stages and amounts are set by The Ministry of Housing and Local Government (KPKT).
Progressive Interest is the interest you’ll need to pay on these stage-by-stage payments which have been released by the bank. Bear in mind that the payments you need to make before 100% of the loan are released are on interest only, but you do have the option of paying more right from the start! This means you get started reducing the original amount loaned, and the interest that is charged on top of it earlier!
If you have other financial obligations like the rent for your current home, however, it can help to take it slow as the payments begin in small amounts, so you won’t be overburdened at the start, but it’s still going to come down to managing your finances. At the end of the day, a home is a financial responsibility as much as it is an asset. So let’s give you a pat on the back!
As an EXAMPLE for calculation - Let’s assume your interest rate is 4%, and the bank has released RM80,000 out of the total RM400,000 you’ve borrowed for your new home.
Some extra tips include:
- In most cases, for the first nine months, there is minimal progressive interest payable as the project has yet to hit key milestones
- Payments increase significantly once the progress is past the halfway point
- Some developers offer packages or promotions that waive or subsidize the progressive interest and this is especially worthwhile when near completion