What is Progressive Interest? A Guide for Malaysian Property Buyers

If you’re buying a property under construction in Malaysia, you’ll likely come across the term progressive interest. It’s a term that can be confusing, but understanding it can help you plan your finances better during the construction phase.

What is Progressive Interest?

Simply put, progressive interest is the interest you pay on your home loan while your property is still under construction. Unlike a fully completed home where you start paying off the loan immediately, progressive interest charges accumulate based on how much of the loan has been disbursed to the developer at different construction stages.

Let’s break it down with an example:

• Stage 1 (Foundation): The bank releases 10% of your total loan, and you’ll only pay interest on that 10%.
• Stage 2 (Structure): When the building structure is completed, the bank releases another 20%, and now your interest is calculated based on 30% of the loan.
• This continues until the property is fully constructed, at which point you begin paying both the principal and interest.

Why Does It Matter?

At the start, your monthly payments may be relatively low because only a small portion of the loan has been disbursed. But as the construction progresses, your payments will increase. It’s important to plan for these rising costs to avoid any financial strain.

Tips for Managing Progressive Interest:

1. Plan Ahead: Understand that your payments will gradually increase as the construction progresses. Make sure your budget can accommodate these changes.
2. Check Developer Incentives: Some developers offer rebates or promotions to help offset the cost of progressive interest during the construction phase. Keep an eye out for these deals to reduce your burden.

By understanding how progressive interest works, you can better manage your finances and avoid surprises during the construction period.