CONSTRUCTION LOAN INFORMATION FOR AUSTRALIAN BORROWERS
Obtaining a Construction Loan in Australia - Information, money saving tips and commentary

Construction Loan



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What is a Construction Loan?

A Construction Loan is for people who are building a new home, although some lenders also provide the same type of loan for renovations.

In each case the loan funds are drawn down in stages as the builder reaches agreed construction milestones. The lender uses an independent expert to monitor the construction process and only makes progress payments when the builder has reached certain objectives and met satisfactory standards.

Most lenders only require interest payments on the loan during the construction phase. After completion the loan becomes a standard variable rate loan. In some cases it becomes a fixed interest loan.

A construction loan helps to minimise your mortgage repayments until your new home is completed, takes control over payments to the builder, and and reverts to a normal loan on completion.


CONSTRUCTION LOAN FOR PERSONAL OR INVESTMENT PROPERTY
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Construction Loan

Features of Construction Loans

A Construction Loan is a flexible loan where funds are drawn down as the builder completes various stages of your home.

Often these are at:
  • When concrete or timber flooring is laid
  • When the framework or walls are up
  • When the house reaches lockup stage
  • On completion
The lender requires a fixed price contract from a licensed builder, council approved plans and specifications, and proof of current builders insurance.

Benefits of a Construction loan

  • The construction loan usually operates as an interest only loan until construction is completed.
  • You provide invoices to the lender who controls payments to the builder.
  • The lender provides an expert to monitor construction and approve progress claims.
  • All the standard benefits of a normal variable or fixed rate loan.

Tips and strategies

  • Avoid loans with monthly account fees
  • Making weekly or fortnightly repayments pays your loan off faster than monthly payments because you are making 1 or 2 extra repayments per year
  • If interest rates drop, continue making repayments at current levels
  • Have your wages paid into your loan account to reduce interest and use the interest free period on a credit card for purchases before paying the credit card bill from the loan account
  • Put lump sum payments like tax refunds into your loan account. If you need some of the money later on, use the redraw facility.

Example Rates and Fees

Variable Rate Home Loan NO FEES (June 2016):
  • Monthly fee NIL
  • Annual fee NIL
  • Redraw fee NIL
  • Extra Payment fee NIL
  • Fixing fee NIL
Low Rate 5.60% std. variable
CCR 5.68%*
*Based on $250,000 Loan over 25 years.

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