Building our 1st Investment Home

[mags]

Hi

Can anyone tell me whether this is a normal scenario?

We purchased some land in QLD 3years ago and have now decided to build on it.

We have chosen a builder and arranged our finances to build. Because we have collateral in our own home the bank gave us the money to build the investment home and we have it in a offset MISA account.

The builder wants us to put 35% of the puchase price ($55,310) in a joint account to ensure that he gets the last two payments.

Is this normal practice?

We are not too happy about doing this as it means that we will be paying interest on the $55,310 for the five or six months that the builder takes to complete the home, and I wonder who is entitled to the interest (if there is any) on the money if it's in both the builder and our own names?

I have asked the bank if they can freeze 35% and write a letter to the builder to say they have done so but they say that they cannot do that as the money is in our account for us to use.

Any advice would be appreciated

 

[Rolf Latham]

Hiya

A little unusual, but not uncommon.

The builder wants to make sure you arent going to nick off without paying as well ..........

How much is the interest ?

ta
rolf

 

[mags]

Hi Rolf

thanks for the reply.

We have a fixed interest rate @ 7.37%. Looks as if we will be paying around $340 a month for the five or six months that it takes for the home to be completed "lost money as far as I am concerned", as I could find a better use for it!

 

[mitta]

The builder wants to make sure you arent going to nick off without paying as well ..........

I wonder why you would nick off if it is your land and your having your house built and you have your loan approved ? We had a few specs built, and never had to place any funds in a joint account. When the builder had completed a stage, he would request a payment and you would authorize the bank to pass on the payment, including the final payment. I was always under the impression that the pressure was on the builder to satisfied the client with his workmanship and the overall job, before the client gave approval for the last drawdown payment.

Mark

 

[NOT 2 L8]

Hi Rolf

thanks for the reply.

We have a fixed interest rate @ 7.37%. Looks as if we will be paying around $340 a month for the five or six months that it takes for the home to be completed "lost money as far as I am concerned", as I could find a better use for it!

Why would you draw down the total borrowing?? Would it not be economically smarter just to draw down the progress payments when due and only pay interest on the amount outstanding??

Just thinkuing out loud.

Cheers Chrisv

 

[mitta]

Why would you draw down the total borrowing?? Would it not be economically smarter just to draw down the progress payments when due and only pay interest on the amount outstanding??

I agreed totally with Chrisv, you sign a contract with the builder setting out all the progress payments which are a % of the contract price and when the builder has completed that stage and or when the valuer has given the ok you then present the progress claim to the bank, no joint account.

Mark