Building your dream home or undertaking major home renovations in the Redcliffe and Moreton Bay Region requires careful planning and the right financing structure. Construction loans offer unique features that differ significantly from standard home loans, particularly in how funds are released and interest is calculated.
How Construction Loan Structures Work
Unlike traditional mortgages where you receive the full loan amount upfront, construction loans use a progressive drawdown system. This means you only access funds as you need them throughout various stages of the project. The lender will only charge interest on the amount drawn down, which can result in significant savings during the building process.
The structure typically works through a Progressive Payment Schedule, which aligns with construction milestones. Whether you're working with a registered builder on a new build or managing your own renovation project, these scheduled releases ensure funds are available when contractors, plumbers, and electricians need payment.
Progressive Payment Schedules and Milestones
Most construction loan structures follow standard industry milestones:
- Site preparation and foundations - Usually 10-15% of the loan amount
- Frame stage - Approximately 15-20%
- Roof and wall cladding - Around 15-20%
- Internal fit-out - Typically 25-30%
- Practical completion - Final 20-25%
Each drawdown requires inspection and approval from the lender, ensuring the work meets required standards before releasing additional payments. This protects both you and the lender throughout the construction process.
Ready to get started?
Book a chat with a Finance & Mortgage Broker at The Wealth Growers today.
Interest Rate Structures During Construction
During the construction phase, most lenders offer interest-only repayment options. You'll typically pay a higher interest rate than standard home loans during construction, but this often converts to a more competitive rate once building is complete.
The Progressive Drawing Fee applies each time you request funds, usually ranging from $300 to $500 per drawdown. While these fees add to your costs, the savings from only paying interest on drawn amounts often offset these charges, especially on larger loan amounts.
Valuation Methods for Construction Loans
Lenders use an 'as if complete' valuation method when applying for a loan. This means they assess what your property will be worth once construction finishes, not its current value. This approach is particularly relevant if you plan to demolish existing property or are buying off the plan.
For house & land packages, lenders may structure the loan differently, potentially offering more favourable terms as the risk profile differs from custom builds or major renovations.
Planning Your Construction Loan Structure
Before approaching lenders, you'll need:
- Council plans and permits
- Fixed price contracts with your registered builder
- Clear understanding of council restrictions and regulations
- Detailed costings for Out of Contract Items not included in your building contract
- Development application approvals where required
Most lenders require you to commence building within a set period from the Disclosure Date, typically 6-12 months. This timeframe varies between lenders, so it's important to make a plan that aligns with your building schedule.
Choosing the Right Structure for Your Project
The ideal construction loan structure depends on your specific situation. Those purchasing in an ideal location within your price range might benefit from different options than someone undertaking extensive renovations. A home improvement loan might be more suitable for smaller renovation projects.
For larger projects requiring substantial funding, accessing Construction Loan options from banks and lenders across Australia through a mortgage broker can help you compare structures and find terms that match your needs. Different lenders offer varying approaches to progress payments, additional payments, and conversion to standard home loans.
Working with Professionals
Construction financing involves multiple moving parts - from coordinating with your registered builder to ensuring you can pay sub-contractors on schedule. The streamlined application process offered by experienced brokers can help you understand which lenders offer the most suitable structures for your project.
Whether you're building on suitable land, renovating your current home, or managing a complex development, having the right loan structure in place ensures your project progresses smoothly without funding delays.
Choosing the right construction loan structure sets the foundation for your building project's success. From understanding progressive drawdowns to managing interest costs and payment schedules, each element plays a crucial role in bringing your vision to life.
Call one of our team or book an appointment at a time that works for you to discuss which construction loan structure aligns with your building plans and financial goals.
