You will be able to explain how payments are spread out when you buy a BTO flat or a unit in a new private launch.
Aisyah, Hakim's sister, bought a condo from a developer three years before it was finished. In the first year she barely noticed the loan, because her instalments were a few hundred dollars a month.
Then her lawyer started sending letters. Each one said another construction stage was complete and another part of the price was due, and her instalment rose with each one. By completion she was paying the full instalment. A home that is not built yet is paid for differently from a completed one. The two common cases in Singapore are a BTO flat from HDB and a new launch from a private developer.
With a BTO there is a long gap between booking and moving in, and the payments are bunched at the two ends.
At booking you pay an option fee in cash to secure the unit. Some months later you sign the Agreement for Lease with HDB and pay part of the downpayment. That part can come from CPF, cash or both, depending on your loan. Stamp duty is due around the time of the Agreement for Lease.
Then comes the build period. It often lasts years, and you pay little during it. At key collection you pay the rest of the downpayment, the loan is drawn and your instalments begin. Legal fees fall due around then too, along with the fire insurance and Home Protection Scheme cover that the loan requires.
HDB decides how the downpayment is split between signing and key collection. The split depends on your loan type and on any staggered payment option HDB offers. The current details are on the HDB website.
Because the two ends are years apart, a change in your life between them matters. If you lose your job or your income drops before key collection, that can affect the loan you get when it is finally drawn.
A condo or EC bought from a developer before completion is paid under a progressive payment scheme. You pay the price in stages, and each stage is triggered when the developer reaches a construction milestone.
It starts with a booking fee, paid in cash, when the developer grants you the option. You then sign the sale and purchase agreement and pay the rest of the downpayment, in cash and CPF, within a set period. The remaining stages follow construction in this order:
foundation structural framework walls ceiling doors, windows, wiring and plumbing roads and car parks temporary occupation permit certificate of statutory completion
Each stage has a percentage of the price attached. The percentages are set out in the sale and purchase agreement, which follows a standard schedule. Once the downpayment is paid, the loan covers the stages that follow. At each stage the bank pays that portion to the developer, and the amount you have borrowed goes up.
Under progressive payments you pay interest only on the part of the loan that has been drawn, and the instalment is calculated on the drawn amount alone. Each new stage raises the instalment, which is what Aisyah saw in her lawyer's letters.
Take a new launch loan of S$840,000 (an invented example) at 3% interest (an invented rate) over 25 years. Once the whole S$840,000 is drawn, the instalment is about S$3,983 a month. At a point during construction when S$200,000 has been drawn, the instalment on that amount is about S$948 a month.
The lower early instalments are real savings, but they only last until completion. The full instalment arrives with the keys, often at the same time as renovation, furniture and moving costs. Budget for the full instalment from the start, and use the lower early payments to build up cash for when you get the keys. One way is to set aside the difference between what you pay each month and the full instalment.
Banks often build the lock-in on a loan for an uncompleted property around the construction period, so check when your lock-in starts.
For both a new launch and a BTO, the contract fixes the payment schedule and you must follow it. The developer or HDB sends a notice when a stage is reached, and you then have a set time to pay. If CPF is paying a stage, the balance must be there. If cash is needed, it must be in your account.
Before you sign, list every stage and give each one an approximate date, an amount and a source, either cash or CPF. For a BTO, HDB's estimated completion date gives you the key collection date. For a new launch, the developer gives an expected completion date, and the construction stages fall between signing and that date. Then check that the CPF balance or the cash will be in place for each stage. Lesson 4.4, Build your downpayment plan, in the course Big goals: wedding, home, car and kids, walks through a BTO payment plan from the savings side, including checking that your CPF balance will be there at each date.
Farah and Hakim mapped out the payment stages for the BTO option they had considered in module 1, even though they chose a resale flat. Seeing the cash they would need at key collection, four years out, made the resale choice easier to explain to Farah's parents.
In the activity below, write the payment stages for a BTO flat and a new launch, and the cash or CPF source you would use for each.
Write down the payment stages for a BTO flat and for a new launch, and next to each stage, whether you would pay it from cash or CPF.
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