What is Progressive Interest?

When you buy a property that’s still being built, you don’t start paying for the full mortgage right away. Instead, you pay something called "progressive interest." This interest grows bit by bit until you finally receive the keys. So, every month, as the property takes shape, a portion of the loan is disbursed by the bank to the developer, and that’s when you start paying interest on the released amount.

Why Progressive Interest Adds Up

Think of it this way: the more the bank pays the developer, the more interest you have to pay. And this keeps going until the project is finished, which can take a few years. You’re essentially paying for something you haven’t even fully received yet.

Breaking Down the Costs

A lot of buyers might ask, "How much does this add up to in total?" Unfortunately, it can be a substantial amount. Imagine that every month, more and more of your loan amount is paid out to the developer. This means that every month, your progressive interest payments grow. It’s like a snowball effect: small at first, but bigger and bigger over time.

The 'Vacant Possession' Moment

“Vacant possession” is just a fancy way of saying "you get the keys." Once you have the keys, your full loan kicks in, and you start making monthly mortgage payments instead of progressive interest payments. At this point, you’ve essentially paid interest for the time it took for the property to be built.

So, should you worry about it?

Should You Worry About Progressive Interest?

While paying progressive interest isn’t ideal, it’s not all bad. Some buyers see it as part of the process. However, it’s good to know how much you’re paying in interest so you can budget for it and not be surprised. If you’re buying property on a tight budget, this is something to think about before you commit.

Who Ends Up Paying More?

Properties that take longer to complete will have higher progressive interest costs since the payments stretch out over time. If your property is completed faster, you’ll pay less in progressive interest.

Final Thoughts

In summary, progressive interest is a cost you’ll want to understand when buying a new property. While it adds to the overall cost, planning for it can make the process smoother. Make sure you’re fully aware of how much progressive interest you’re paying so you can budget effectively! ​