Building your dream home or undertaking major home renovations in Mount Waverley requires careful financial planning. Construction loans operate differently from standard home loans, with unique structures designed to accommodate the building process. As your local Finance & Mortgage Broker, Ozgroup Finance helps clients access Construction Loan options from banks and lenders across Australia.
How Construction Loans Work
Unlike traditional mortgages where you receive the full loan amount upfront, construction loans use a progressive drawdown system. This means you only charge interest on the amount drawn down at each stage, making it more cost-effective during the building process.
The structure typically involves:
• Interest-only repayment options during construction
• Progressive Payment Schedule aligned with construction milestones
• Progress payments released as work is completed
• Final conversion to a standard home loan upon completion
Progressive Drawdown System
The progressive drawdown forms the backbone of construction loan structures. Lenders release funds in instalments based on predetermined construction milestones. This protects both you and the lender by ensuring money is only released when work reaches specific completion stages.
Typical drawdown stages include:
- Deposit and site preparation
- Foundation and slab completion
- Frame and roof construction
- Lock-up stage (windows and doors installed)
- Fixing stage (plumbing, electrical, painting)
- Practical completion
Valuation and Assessment Process
Lenders conduct an 'as if complete' valuation at the loan's commencement. This determines your maximum loan amount based on the property's projected value once construction finishes. Throughout various stages of the project, inspections verify work completion before releasing additional payments.
Your registered builder submits progress claims, and the lender arranges independent inspections. Once satisfied with the work quality and progress, they release the next instalment directly to your builder account.
Interest Rate Structure
Construction loan interest rates may differ from standard home loan rates. During the building phase, you typically pay interest only on drawn amounts. This means if you've drawn down $200,000 from a $500,000 facility, you only pay interest on the $200,000.
Most lenders offer variable interest rate options during construction, with the ability to lock in rates upon completion.
Types of Construction Projects
Construction loan structures accommodate various building scenarios:
New Build Projects
• Building on suitable land you already own
• House & land packages from developers
• Projects requiring demolish existing property before construction
Renovation Projects
• Major home renovations exceeding $50,000
• Home improvement loan options for structural changes
• Extensions and significant upgrades
Off-the-Plan Purchases
• Buying off the plan from developers
• Structured payments aligned with construction progress
• Protection through staged payment systems
Important Considerations and Fees
Construction loans include specific fees and requirements:
Progressive Drawing Fee
Lenders charge a Progressive Drawing Fee for each inspection and payment release, typically ranging from $300-$500 per drawdown.
Fixed Price Contracts
Most lenders require fixed price contracts with your registered builder, providing cost certainty and protecting against budget overruns.
Timeframe Requirements
You must commence building within a set period from the Disclosure Date, usually 6-12 months, ensuring projects don't stall indefinitely.
Out of Contract Items
Remember that Out of Contract Items not included in your building contract require separate funding arrangements.
Planning Your Construction Project
Successful construction financing requires thorough preparation:
• Make a plan including realistic timelines and budgets
• Research your ideal location and price range
• Understand council restrictions and council regulations
• Obtain necessary council plans and permits
• Submit development application where required
• Coordinate with plumbers, electricians, and other trades
• Ensure your registered builder has appropriate licenses and insurance
Application Process
Applying for a loan involves more documentation than standard home loans. Our streamlined application process helps Mount Waverley clients prepare comprehensive applications including:
• Building contracts and specifications
• Council approvals and permits
• Builder licensing and insurance documentation
• Detailed cost breakdowns
• Project timelines and milestones
Working with experienced mortgage brokers ensures you access suitable construction loan products and understand the commitment involved. We help you pay sub-contractors efficiently and manage cash flow throughout your building journey.
Whether you're planning a new home, considering major renovations, or exploring house & land packages, understanding construction loan structures helps you make informed decisions about financing your Mount Waverley property project.
Call one of our team or book an appointment at a time that works for you to discuss your construction financing needs and explore available options.