How does construction (A&A) loan works?

[Peng Jason 0]

Hi all,

I understand that Banks may loan up to 80% of the construction invoice/quotation.

After TOP,  the construction loan can be converted up to 80% of the value of the new house.

But I also read on this link and I am bit confused how it is calculated.

Can any kind soul advise?

Thanks,

 

 

[snoozee 65]

not sure if my understanding is correct or not as this is based on my hazy recollection from discussion with my banker > 1 year ago and what I had read in this forum.

You need to get a quotation from your builder/contractor on how much the construction cost will be at. The bank will also do a valuation of your house based on the approved design and then decide how much they can loan you, subjected to TDSR. if you have an existing home loan, the construction loan repayment installments and existing loan repayment installments must be below your TDSR, else the bank cannot loan you the 70% or 80% of the construction costs.

assuming that you can get a loan of up to 80% of the construction cost, this construction loan will be disbursed to you at current prime rate (which is about 5% interest). this prime rate will apply throughout the duration of your house construction process until you get TOP or CSC upon which the outstanding balance can be converted to your existing (if any) home loan at the home loan rates (currently about 2%). As TOP is usually obtained before CSC (though in cases both can be obtained at same time), it is better to get a construction loan which will allow you to do the conversion when you get TOP instead of CSC since CSC can be several months after TOP. this will allow you to save quite a bit on the interest you need to pay.

Again, I stress that the above might have some incorrect information so for more accurate information, best is talk to your banker.

[Peng Jason 0]

Thank much - I am quite clear now , same as what i understand.

[TacticalKarma 0]

On 3/13/2018 at 11:29 AM, Peng Jason said:

Hi all,

I understand that Banks may loan up to 80% of the construction invoice/quotation.

After TOP,  the construction loan can be converted up to 80% of the value of the new house.

But I also read on this link and I am bit confused how it is calculated.

Can any kind soul advise?

Thanks,

 

 

Hey, so personally I think that it's always depends on the politics of the company that doing that, since some of them differs from the others. However, once I had a problem with a house that I wanna build, so when I bought a place for a future house, I decided to take a loan for some construction work, so I builded it almost a year, and lately I discovered that I have a debt that I should pay to the office and in one day, guys from the debt collectors came to me and we discussed how can we solve this problem (they was pretty nice) (I guess this is the guys frontline-collections.com) . Since then I am trying not to take any loans in my life.

[GoodVictor 0]

Aren't construction loan rates higher than those of mortgage?

[Olivoil 0]

As far as I know, while your home is built, your costs are kept to the minimum. After that, the home loan will revert to principal interest. For this reason, I think it is more convenient to get a mortgage. The rates are lower for it and it is less risky. More than that, the construction loan is more complicated because you have to be extremely prepared with a construction plan, timetable and a budget that makes sense. Therefore, I suggest you get advice from Mortgage Advisor London concerning your issue. I'm sure they'll find an explication and a way out!

[Vodarado 0]

It's a very tricky subject!

[GoodVictor 0]

One thing I know, that we must pay a lot of attention to this subject. I'm not a big financial specialist, but I think we must consult professionals in this domain to make the right decision. Because of the decision made today we can suffer consequences tomorrow. So from my point of view, it's a very sensitive subject. For example, I use the services of Elems.co.uk. Their company is one of the best in our local market. The guys from there are always providing me the best solutions for my problems. So think about tomorrow and make the right decision!