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, BUC loans have 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.
Purchase Price: S$2,000,000
Loan Quantum: S$1,600,000
Table 1: Disbursement Schedule for BUC Loans
|Stage||Month||Disbursed Ratio||Interest Rate||Disbursed Balance||Monthly Installment|
|Completion of Foundation||1||10%||1.250%||S$200,000.00||S$666.50|
|Completion of Superstructure||7||10%||1.250%||S$397,243.81||S$1,342.32|
|Completion of Brick Wall||13||5%||1.450%||S$491,658.14||S$1,731.45|
|Completion of Ceiling/Roofing||17||5%||1.450%||S$587,100.42||S$2,086.91|
|Completion of ElectricalWiring/Plumbing||21||5%||1.450%||S$681,580.43||S$2,445.75|
|Completion of Roads/CarsParks/Drainage||25||5%||1.450%||S$775,079.97||S$2,808.04|
|Issuance of Temporary OccupationPermit (TOP)||29||25%||1.450%||S$1,267,580.46||S$4,637.19|
|Certificate of Statutory Completion||40||15%||2.750%||S$1,534,842.41||S$6,759.05|
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.
Understanding BUC home loans and the different packages?
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
SORA, (Singapore Overnight Rate Average) has been recommended as the alternative interest rate benchmark to SOR by the Association of Banks in Singapore (ABS) and the Singapore Foreign Exchange Market Committee.
SORA is an interest rate benchmark based on the average rate of unsecured overnight interbank SGD transactions brokered in Singapore between 8am and 6.15pm. Administered by MAS, SORA is underpinned by a deep and liquid overnight funding market, and is commonly monitored by money market participants as a reflection of daily conditions in SGD money markets.
Most lenders have moved to SORA-pegged home loans in recent years. Since SORA is more predictable, homeowners taking a SORA-pegged housing loan will have greater visibility on the interest rates that they need to pay on their home mortgage. Besides this, SORA offers other advantages for homeowners as well.
As of March 2022, we found that the average interest rates of home loans in Singapore ranged between 0.80% to 2.50%, with most bank charging below 2%. This rate can vary depending on whether your property is a HDB flat, a private residence, or a building under construction. Not only that, rates can be different for home loans that are used to refinance an existing home loan.
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.
Understanding BUC Home Loans means Knowing how progressive payment work
When you opt for Progressive Payment Scheme, you make instalment payments in tandem with the construction progress. … It refers to the payment by instalments, typically 5 – 10 per cent. When the construction works reach a specific milestone, the developer will call for the payment from the new launch condo buyers. it allows you to service your loan via monthly instalments progressively as the property is being built.
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.
Many buyers are sometimes unaware of a cancellation fee on any undisbursed loan if one refinances before the legal completion of a new project. This stage known as the Ccertificate of Statutory Completion (CSC) phase.
CSC is usually obtained about 9 months to a year (sometimes longer) after the collection of keys. So, at TOP, even though your bank would have disbursed to pay up to 85% of the purchase price, there’s still a balance loan of 15% which is yet to be disbursed.
If you decide to refinance to the lowest fixed rate home loan from another bank when the developer calls for this remaining balance any portion of the loan yet to be disbursed will be treated as cancelled.
This is not an unlikely or unreasonable scenario. With today’s high inflation and low interest rates such an action may be reasonable for some buyers. But when this happens, you will be slapped with a cancellation fee typically 0.75% on the amount cancelled. For a purchase price of $2 million, this works out to about $2,250 (0.75% on undisbursed loan of $300,000).
Of course, there’s always a free conversion at T.O.P. for all BUC home loans where the bank waives any repricing or cancellation charges and allows you to switch to another home loan package within the bank. Again many first-time purchasers are not experienced enough to know that – as an existing customer you may not get the same lowest rates as a new-to-bank customer. For free conversion, most banks’ letter of offers are worded like this (or some variations of it): “..provided this request is to convert to the interest rate package determined by the Bank from time to time..”.
After understanding BUC home loans you must know how to get it 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.