YOUR MONEY SORTED Paying your builder

Eight things you need to know so your building project stays on track

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HOW DO PROGRESS PAYMENTS WORK?

Building loans are usually calculated on the market value (not replacement value) of the property as if completed. As the building progresses, money from the loan for the next building phase is paid out. The number of these payments, usually 4 to 6, will be decided before you start building.

WHAT SHOULD YOU EXPECT TO PAY OUT OF YOUR POCKET?

Since the building loan usually amounts to around 60% to 90% of the contract price (this will depend on various factors, such as the building cost and your ability to pay the loan), you can expect to pay a deposit and possibly the shortfall for some building costs.

According to Absa, the initial payment to your builder to start building can be an estimated to be 10% or more of your contract price.

You’ll also probably need to pay deposits to suppliers for building materials such as cupboards, aluminium doors and

But you can avoid this if you have a contract that clearly stipulates both parties’ responsibilities and when progress payments are due.

windows. These deposits aren’t usually covered by your loan so you’ll need to budget for them. When the balance is due you will in all likelihood be able to draw from your loan to pay your suppliers, but check with your bank before ordering supplies so you don’t get any nasty surprises.

DO I HAVE TO ASK THE BANK TO RELEASE THE FUNDS?

Yes. You authorise your bank to release the payment. Your builder will ask you for a progress payment when he needs funds. Before you do, you should first check that the required work up until that point of the contract has been completed and is to the standard that was agreed upon by you and the builder.

You then complete a progress form for your bank, which you can do online. The bank will then send a valuer to your construction site to ensure that the building work complies with the bank’s requirements. The valuer will provide feedback to the bank and the bank will confirm the approved amount with you and

There is no agreement between your builder and your bank. Payments will always be made to you, and then you pay the builder.

HOW DOES INTEREST ON PROGRESS PAYMENTS WORK?

Interest is calculated from when you make your first payment to the builder. This kind of interest is called interim interest. It’s calculated on your outstanding balance during your building period.

As progress payments are made, the outstanding balance and your interest on the amount payable will increase.

You should pay interim interest every month. Otherwise, it could be capitalised and added to your outstanding balance, reducing your available funds for building, Absa warns.

WHEN IS THE FINAL PROGRESS PAYMENT MADE?

Only once the bank receives an occupation certificate from you. This can be obtained from your local municipality.

WHAT SHOULD YOUR BUILDING CONTRACT SAY ABOUT COSTS?

You should get some legal

Most banks provide information about building loans that is easy to understand.

You have a five-day cooling off period during which you can look for legal or other expert advice about the agreement – or cancel it.