BUC loan may make it worthwhile to purchase a property while it is being constructed

It well may be more worthwhile to buy a property with BUC loan while the property is still under construction as the loan quantum is smaller, and hence interest payment, during the initial few years

buc loan
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Can you get a BUC loan?

A BUC (or Building Under Construction) Loan is available for an under-construction property. It is usually disbursed in tranches. You will avail portions of the loan as and when the builder demands payment. As with all loans, the total purchase price also has to be paid first by a certain percentage of cash, followed by CPF, and lastly bank loan.

How is a BUC loan different from a loan given for a completed property?

Unlike a loan for a completed property which is 100% disbursed at one time, a BUC loan has a progressive disbursement schedule. In other words, a certain percentage of the loan is disbursed at each stage of the property construction. The following example illustrates this.

Example 1

Purchase Price: S$2,000,000
Loan Quantum: S$1,600,000

Table 1: Disbursement Schedule for a BUC Loan

StageMonthDisbursed RatioInterest RateDisbursed BalanceMonthly Installment
Completion of Foundation110%1.250%S$200,000.00S$666.50
Completion of Superstructure710%1.250%S$397,243.81S$1,342.32
Completion of Brick Wall135%1.450%S$491,658.14S$1,731.45
Completion of Ceiling/Roofing175%1.450%S$587,100.42S$2,086.91
Completion of ElectricalWiring/Plumbing215%1.450%S$681,580.43S$2,445.75
Completion of Roads/CarsParks/Drainage255%1.450%S$775,079.97S$2,808.04
Issuance of Temporary OccupationPermit (TOP)2925%1.450%S$1,267,580.46S$4,637.19
Certificate of Statutory Completion4015%2.750%S$1,534,842.41S$6,759.05
Source: www.iCompareLoan.com

Repayment of the loan commences at the first disbursement. That is in the first month. Disbursed Ratio is the percentage of the purchase price, not the loan quantum. In the first month 10% is disbursed and in the seventh month, another 10% is disbursed, and so on.

Do note that this schedule is only a guide, the actual completion time for each stage may vary in reality, but the amount payable at each stage should be the same.

If you still need clarification on the payment schedule of a BUC loan, you can turn to a professional mortgage consultant who dispenses free advice and reports generated from Singapore’s most advanced loan analysis system.

What are the different types of BUC loans?

Similar to the loan for a completed property, a BUC loan comes in the usual types:

  • Fixed Rate Package
  • Variable (Floating) Rate Package
  • Board rate (bank’s internal reference) – pegged
  • SIBOR-pegged
  • SOR-pegged
  • Combo SIBOR/SOR [recently introduced by Australia and New Zealand Banking Group Limited (ANZ)]

Previously, interest-only loans were popular among buyers of BUC projects because this type of loans allows them to defer principle repayments till a later date. This makes monthly installment much lower as it consists only of interest repayments. However, this fuelled property speculation, causing the Government to cancel interest-only loans since 14 September 2009.

For the existing loan types (ie. fixed rate or variable rate package), conversion if allowed is usually after TOP.

As BUC loans are disbursed progressively, full repayment will be subjected to a cancellation fee, normally 1.5 – 2.0% of the un-disbursed amount. If the repayment is during the lock-in period, you will have to bear the cancellation fee on top of the lock-in penalty.

Please note that interest rates for BUC loans are not necessarily higher than loans for completed properties. Consequently, it well may be more worthwhile to buy a property while still under construction as the loan quantum is smaller, and hence interest payment, during the initial few years.

How do I secure a BUC Loan Quickly?

If you are planning to invest in properties during this period of private home price increase but are ensure of funds availability for purchase, don’t worry because trusted mortgage broker can set you up on a path that can get you a home loan in a quick and seamless manner. Good brokers have close links with the best lenders in town and can help you compare Singapore home loans and settle for a package that best suits your home purchase needs. You should also find out about money saving tips.

Whether you are looking for a new home loan or to refinance, the Mortgage broker can help you get everything right from calculating mortgage repayment, comparing interest rates all through to securing the best home loans in Singapore. And the good thing is that all their services are free of charge. So it’s all worth it to secure a loan through them.

Written by Ravi Chandran

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