When you are looking at buying a house and land package you may be offered either a turn-key or a progress payment agreement.
Most people like the idea of a turn-key option as it seems more simple. You just pay a deposit to secure the purchase, with the balance being payable upon completion when you take possession of the new house.
Sometimes the building company will only offer a progress payment option, and even though it may seem more complex and less affordable, they should seriously be considered in preference.
Both are generally fixed price contracts, so they offer you certainty about the cost.
But the cost can be significantly different.
It comes down to how much you need to borrow and who is paying the cost of the borrowing.
Why You Might Want Turn-Key Finance
The building companies do not always offer turn-key finance options as this costs them more money.
When they offer you (the buyer) a turn-key finance package, the building companies are effectively funding the purchase of the land and the cost of the build. It’s not until the house is complete that they get paid.
As a consumer you get residential interest rates, but the building companies will pay commercial interest rates.
Ultimately you as the buyer will be paying the building companies funding costs within the total build cost.
You Save Money, But Can You Afford The Repayments?
There are advantages in using a progress payment funding option in the fact that you should pay less interest, but often the need to pay the interest payments during the build put people off this type of funding option.
With the progress payment option you purchase and pay for the land, then make progressive payments to the building company as they work through the build. You own the property the whole time and your last payment is made is made when the build has been completed.
Create Your Own Turn-Key Finance
As specialist new build mortgage brokers we have worked with a bank to create a special turn-key finance option that we can offer you.
This gives you the cost saving benefits of a progress payment build contract, but the interest is capitalised into the loan so you do not need to make repayments during the build.