While planning to buy a condo, potential buyers will first mull over the pros and cons of buying a new one from developer or from resale market before deciding which way to go.
Newly launched condo is appealing to buyers who are not in a hurry to move in and prefer brand new property which requires minimal or no renovation. Buyers who need immediate occupation especially after selling their existing properties, tend to go for resale properties at their preferred location. Although older properties are generally more affordable and tends to be bigger, buyers have to take into account the cost of renovating the unit and the higher maintenance fee. If property is for investment, investor can go for resale property with existing tenancy and collect rent immediately to help cover the mortgage loan instalments.
What you need to know when financing your purchase?
Upfront Deposit and Timing of Downpayment
For newly launched condo, upon confirmation of the unit, the developer will collect booking fee equivalent to 5% of purchase price from buyer and issue the Option to Purchase to the buyer. Around 1 to 2 weeks later, buyer/buyer’s lawyer will receive the Sales & Purchase Agreement from the developer.
Within 3 weeks from receipt of the Sales & Purchase Agreement, buyer is required to exercise the Option to Purchase witnessed by a lawyer. With this, buyer will make further payment equivalent to 15% of purchase price within 8 weeks after the date of the Option to Purchase.
The remaining downpayment is payable upon request by developer during the construction period after each stage of completion. Construction period is on average about 3-4 years. For project that is close to obtaining Temporary Occupation Permit (TOP), buyer is expected to fork out more downpayment within 8 weeks after Option date.
For resale property, buyer will pay option money at 1% of purchase price to seller in exchange for the Option to Purchase signed by seller. Within 14 days after date of Option to Purchase, buyer is required to exercise the Option and make further payment at 4% of purchase price.
Payment of the remaining downpayment is made on completion date, normally 8 to 12 weeks after exercise date, or other timing as agreed between buyer and seller.
In the case where a property is newly launched and buyers are obtaining minimal loan, there is more time to plan the cashflows as the remaining downpayments are gradually pay out over 2 to 3 years. On the other hand, for properties purchased from resale market, buyers have to ensure funds are ready as the remaining downpayments are payable on completion date, which is normally in a few months’ time.
Bank Loan and Monthly Instalment
If the purchase of the newly launched condo involves bank financing, the loan will only be released after the downpayment are settled and in a progressive manner according to each stage of construction. Instalment payment will start right after first loan disbursement. This means the monthly instalment will be a relatively small amount initially and increase over time as more loan are drawn down.
For resale property, bank loan is disbursed in one lump sum on completion date. Thereafter, instalment is payable based on the full loan amount.
Types of Home Loan Packages
In the case where property is under construction, generally banks offer home loan packages that are on floating basis only, either pegged to SIBOR or Fixed Deposit Rate or Bank’s Board Rate. Interest rate will commence on first loan disbursement. Packages normally do not have any lock in period and come with free conversion, which allows switching to another loan package within the same bank at no charge.
Fixed rate packages are only eligible for properties that are completed or those that have obtained Temporary Occupation Permit (TOP).
There are wider selections of home loan packages for completed properties as it comprises fixed rate as well as floating rate packages (that are pegged to SIBOR or Fixed Deposit Rate or Bank’s Board Rate). Packages usually come with lock in period of at least 2 years, which may have restrictions on early lumpsum partial and full repayment of the loan.
Refinancing of Mortgage Loan
For new condo, borrowers normally do not refinance their loan before obtaining TOP. This is because existing bank will charge a cancellation fee on the undisbursed loan. This can be a hefty sum to pay if the property is at the initial construction stage where majority of the loan is not disbursed yet. After obtaining TOP, there is a last portion of loan that will only draw down within one year. At this point, refinancing may be considered as most of the loan is drawn down and the cancellation fee is relatively lower.
Cancellation fee is not a concern for resale properties as the loan is disbursed in one lumpsum on completion date. Borrowers can consider refinancing their loan as long as it is out of lock-in period to avoid penalty.
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