Find out how much you can borrow and whether a construction loan is the best option for your renovation or new build.
Construction loans are a little different to regular home loans. You receive the funds progressively rather than all at once like a regular home loan.
Generally, construction occurs via a fixed price contract with the builder you intend to use. The bank pays the builder directly usually through 5-6 progress payments until completion of the construction. Payments are generally made at these stages:
Your loan is gradually increased at each stage of the build. You pay interest only on the portion of the loan that you have drawn down on. When construction is complete your loan usually reverts to a regular principle and interest home loan. This is where your regular repayments begin.
Whether you’re building or renovating your home we assist you during the construction period to ensure a smooth process throughout each stage of your construction.
Yes its possible to still have interest only repayments at the end of construction. This should be ideally applied for and approved by the bank prior to construction to provide certainty.
Yes and No. Firstly by having a fixed price contract in place with your builder for the scope of your build, the finishes, and the specifications, you minimise the chances of unexpected costs occurring. This is unless you authorise a change/addition during the building process. It is always best to leave yourself some spare funds outside of the building process, just in case you come across some unexpected costs. The bank will only be able to fund up to an approved loan limit, so if a variation occurs during construction, you will have an issue with a shortfall of funds from the bank in meeting payments to your builder you will need to resolve. Every lender’s specific policy can vary, we provide assistance during this period on options and resolutions available to you.
All construction loan products require you to use your own money first prior to using the lenders money to complete the construction.
The majority of lenders want fully completed houses at the end of construction. Some lenders allow certain works to be left outstanding at the end of the build that you can complete in your own time frame, but this is generally minor works not impacting marketability and the market value of the property.
Yes you can. You purchase the land first using a home loan. Repayments can be either Principal and Interest or Interest Only depends what works for you. When it comes to constructing, a construction loan is utilised. The land loan is usually converted to a single construction loan
Do your research, get professional advice and understand loan products available to you and explore all your options. Your level of income, level of savings, household budgets, and any changes to your circumstances in the future are all key factors in determining what loan type is best for you.
Deciding between variable and fixed interest rates is a personal preference. We can talk you through the options currently on offer and help you with this decision.
Variable rate home loans are generally more flexible and have more features than fixed rate home loans. The interest rate fluctuates with the market ensuring you always have a market rate for your home loan.
Features of variable loans can include such things as redraw facilities and extra repayment options.
Fixed Rate home loans ensure you have the same repayment over a fixed term. You lock in your interest rate and initial repayment over an initial agreed term usually between 1 and 3 years. Fixed loans have less flexibility and often have restrictions to redraws or extra repayments over the fixed term. If you look at breaking your fixed rate home loan, you will generally have to pay a break cost which can be quite significant.
Redraw is a loan feature that allows you to access any early repayments made on your loan repayments on your loan. For example, if you made $5,000 in advance repayments on your home loan, a redraw feature allows you to get access to the $5,000 of repayments, put $5,000 back into your bank account, and increases your loan back to where it previously was as if you had not made those repayments in the first place.
An offset account is a separate bank account that is linked to your loan. For any funds held in your bank account, automatically offsets against the loan when it comes to the bank paying interest. For example, if your loan balance is $400,000 and you have $5,000 in your offset account, you only pay interest on $395,000.
A loan redraw feature is generally availiable in all basic home loan products. An offset is seen as a premium feature, generally home loan prducts that allow this feature often come with additional fees and higher interest rates compared to the basic loan products.
In the fine print of many lenders terms and conditions a lender could refuse a redraw request or ask you for further information on use of the funds. This does not happen often, but can happen. If you want full peace of mind in gaining access to your additional repayments or excess savings, then its best to get an offset feature.