Construction or building loans are ideal if you are building a new home or planning a major renovation to your existing home. So whether you are based in Sydney, Melbourne, Brisbane, Perth or anywhere else in Australia, we will source the appropriate construction finance or owner builder finance to assist you in realising your dream home.
A construction loan is very specific to those who want to build a new home and sign a building contract with a licenced builder. The lender will determine the total amount you will need in order to pay your builder and then break it down into separate payments, called progress draws. These progress draws are the amounts paid to your builder throughout the construction stages. While these draws are being made, most lenders will only expect you to pay the interest due on them. Your full principal and interest payments won't start until after the handover and when you recieve the keys to your new home.
The difference between a construction home loan and a standard home loan is that instead of a lump sum payment at agreement sign-off, the loan is usually drawn down in stages for a construction loan. Payments, or draw downs, coincide with the initial purchase of the land, followed by a number of key construction stages. When the construction loan is fully drawn down and the property is complete, it usually reverts to a standard home loan as agreed with the mortgage lender.
Construction loans are ideal for building, as you only pay interest on the amount you draw down. For instance, if you have borrowed $300,000 for a house and land package, but you have only drawn down $150,000 to pay for the land, you only pay interest on the $150,000 and not the full amount.
The mortgage lender will use a valuer to assess the land and proposed construction. The mortgage lender also monitors the construction process and only makes progress payments when the builder has reached certain objectives and met satisfactory standards. You will need to provide invoices to the mortgage lender who controls payments to the builder.
The construction stages
2. Frame and brickwork
3. Lock up
4. Second Fix
5. Practical completion
Against these stages will be a percentage of the overall payment that will need to be paid at that stage.
For more information about construction loans, please speak to one of the mortgage brokers at Intellichoice about sourcing the most appropriate owner builder finance or construction loan to assist you in the construction of your new home. Call us on 1300 55 10 45.