What is a construction loan?

A construction loan is a mortgage loan product designed for those who are would like a new home or investment property. It generally works as below:

  • You have purchased a vacant land or land with an old house to be demolished, and then you have arranged with a builder to build a house on it in an agreed timeframe. The builder would require you to pay 5% of the total construction cost as a deposit.
  • You apply for a construction loan and the application is approved.
  • The builder commences the construction.
  • The lender releases funds to the builder as progress is made.

Features of construction loans

  • You will only be charged interest on the actual drawn-down amount instead of the full loan amount. This can help you save money during the construction process.
  • Your cash flow is bettered managed as during the construction period, it’s interest-only payment.

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