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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