Construction loans are perfect for those who are starting the exciting journey towards building or substantially renovating their dream home. Typically, construction loans enable you to make interest-only repayments at various stages of the construction process.
The funds from these loans are paid to the builder at pre-determined stages of the construction process. This is known as ‘draw-down’. The benefit of this structure of repayment is that it ensures you are only servicing the interest on the portions of the construction which has been completed, rather than on the entire loan.
Our mortgage brokers are equipped with the experience and knowledge to facilitate the most appropriate construction loan for your dream home!
What costs does a construction loan cover?
Most lenders allow you to borrow up to 95% of the value of the property. In addition, they may provide additional funds to service costs associated with Lender’s mortgage Insurance as required. It is important to note that most builders require a 5% deposit in advance of the project being undertaken. Speak to one of our mortgage brokers about how we can organise extra funds in order to ensure construction is not delayed due to any budgetary constraints.
What is draw down?
A typical build is divided into 5 stages:
- Slab down
Laying foundations and installing base structures such as moisture barriers and mechanisms for termite protection
Installing support structures, walls, framework for electrical and plumbing, roofing, gutters and insulation
Installing windows, doors and remaining walls as well as initiating fit outs by plumbers, electricians, carpenters and other tradespeople.
Installing plumbing, lights, power points and other fixtures such as tiling, cabinets, wardrobes and shelving.
Finalising painting, installation and detailing and ensuring your home is ready for moving day!
A draw down is a payment made to the building firm upon completion of each of these stages. Your specific contract with your builder will detail the percentage due at each specific stage. Most lenders specify a 24 month period to complete construction and draw down all funds.
What happens once construction is completed?
When your dream home or renovation is handed over to you, your construction loan becomes a standard variable rate home loan. This means your repayment structure automatically switches to both principal and interest, unless otherwise specified.
Our team are here to ensure you are not left to fend for yourself in the complex and unique structures of construction loans.