Construction Loans

Construction loan

Unlike a traditional home loan where the funds are made available to borrowers in a single lump sum, a construction loan lets you draw on the loan balance when payments need to be made to your builder at certain stages. These payments are known as progress payments. Think of it as a ‘drip feed’ of funds to meet ongoing costs as construction work progresses.

While work is still progressing, your lender will require you to make repayments of interest on the money that has been drawn down. So, at the start of your loan, you can expect small repayments, and these will gradually increase as your building project nears completion. It means you aren’t paying interest on money you haven’t used as you would with a traditional home loan, so with a construction loan your repayments should be far lower until your project is complete.

Construction loans normally have a variable rate and in general you can expect a maximum Loan to Valuation Ratio (‘LVR’ – the amount of your home loan compared to the value of your home, expressed as a percentage) of 95%. This is something worth speaking to your Mortgage Choice broker about, as the situation varies widely between lenders.