Building a new home or undertaking a major renovation is exciting — and the finance works a bit differently from a standard home loan. We help you understand how construction loans work and structure the loan so you’re never out of pocket during the build.
How a construction loan works
With a standard home loan, you receive the full loan amount upfront and start paying interest on the whole amount immediately. With a construction loan, the money is released in stages as the build progresses. You only pay interest on what’s been drawn down — so your repayments start low and increase as the build advances.
Progressive drawdowns
The lender typically releases funds at each stage of construction. The standard stages are:
- Slab / base stage — the foundation is poured
- Frame stage — the frame and roof trusses go up
- Lock-up stage — walls, roof, windows, and doors are in place
- Fixing stage — internal fit-out, plumbing, electrical, and finishes
- Completion / handover — final inspection and keys
At each stage, the builder invoices you, you submit the invoice to the lender, and the lender pays the builder directly. We help you understand this process so you can plan your cash flow.
What you’ll need
- A signed building contract with a licensed builder
- Council-approved plans and specifications
- A construction timeline or progress payment schedule
- Evidence of your deposit and income (same as a standard home loan)
- Builders’ insurance and, in some cases, all-risk insurance during construction
Interest during construction
During the build, you typically pay interest only on the drawn balance. Once construction is complete and the lender issues the final drawdown, the loan converts to a standard principal-and-interest (or interest-only) loan. We help you plan for this transition so there are no surprises.
Renovations
If you’re doing a major renovation, some lenders offer construction-style loans for this too. Smaller renovations may be funded through a standard home loan with a redraw facility or a personal loan. We’ll help you figure out which approach fits your project.
Planning to build or renovate? Book a free chat with James to get the structure right from the start.
General information only. Talk to James for advice tailored to your situation.