Cost and Charges on a Building Loan

Cost on the drawing of building plans by an Architect. Fee payable for approving building plans at Local Authority. Payable rates and taxes to the Local Authority, after purchasing the stand. Interim interest is interest charged on the outstanding balance, from the date of the first debit on your Home Loan account, to the date of the final progress payment after which date the normal Home Loan repayment will commence. Even though repayment is only required after the final progress payment, it is advisable to cover these costs in the interim.

Interim interest can mount up during the building period and if it’s not paid, a portion of the final progress payment needs to be found from other funds as the interim interest will have utilized part of the loan that was granted.

The customer should pay out the difference between the contract price and Home Loan amount to the builder before the bank will advance any monies. This is only when the contract price is higher that the Home Loan amount.

The building process is usually monitored and approved in various stages. Normally a contract specifies four stages: foundation, window ceiling height, roof height and final stage. An assessor will need to access the cost of the work completed.

A progress payment is a payment released by an assessor – authorized by the customer – to pay the builder, or another elected party that need to be paid, at certain stages of the building process of work completed.

As work progresses, the builder will submit request for payment. You will then have to submit a progress payment request to the bank. After the assessor has assessed the cost of the work, carried out, payment will be authorized - with consent from the customer. The assessor will calculate the amount available.

The bank will only pay, for the work completed or materials actually used and will retain adequate money for completion.

There will usually be three of four progress payments to the builder prior to the completion of the house and therefore interim interest will be calculated on such payments. Be sure to budget for that.

Never sign a blank progress payment request and hand to the contractor. When the contractor calls for final payment, inspect the house to satisfy yourself that it has been completed to your satisfaction, which protects the consumer against the builder, walking away with all the money prior to completion of the building.

The building/alterations are to be completed within the stipulated period as per the Home Loan agreement, failing which the bank reserves the right to withdraw its offer.

An occupation Certificate issued by the Local Authority will be required prior the final payment being made to the builder. This will insure that the property has been inspected and all requirements by the local authority have been met.

Rights and obligations

The bank reserve the right to protect their interest, in their discretion, which might include summary closing your account, if compelled with law and if they have reason to believe that your account is being used for fraudulent purposes.

Cover Clause

The cover clause is an amount registered in addition to the Home Loan amount registered. The bank has the right to register this amount in order to safeguard the bank against any additional costs, such as litigation arrears etc. Even though this reflects on letter of grant and Home Loan account history, the customer does not pay for this additional value on the bond.

NOTE: Repayments will only commence once the Home Loan has been paid out in full. You can make additional payments before final payment to compensate for interim interest, which will eliminate any possible shortfall on the final payment.