You pay for what is built
Why draw down in stages?
Interest accrues only on funds actually released, so you are not paying interest on the full loan amount while there is nothing standing on the block.
CONSTRUCTION
Finance for building, rather than buying
Construction lending is drawn down in stages as the build progresses. It works differently from a standard home loan in ways worth understanding first.
IN SHORT
A construction loan releases money in stages, not all at once
Rather than one lump sum at settlement, the lender pays your builder progressively as defined stages are completed — typically slab, frame, lock-up, fit-out and completion. Each drawdown usually follows an inspection or valuation confirming the stage is done.
You are generally charged interest only on the amount drawn so far, so repayments start small and grow as the build progresses. Once the build finishes, the loan usually converts to a standard principal and interest home loan.
Lenders assess the finished value using the land plus the fixed price building contract, which is why the contract and the plans matter as much as your income does.
WHY IT HELPS
What the structure gives you
Stage checks along the way
Who confirms the work is done?
Each drawdown is normally tied to an inspection or valuation. It is administrative, but it means funds are released against progress rather than promises.
A fixed price contract
How is cost overrun managed?
Lenders generally want a fixed price building contract, which limits variation risk for both you and them. Variations still happen, and need funding.
HOW IT WORKS
The sequence, and where it usually snags
Construction finance has more documentation than a standard purchase and more parties involved. Most delays come from paperwork and approvals rather than from the lender.
- Land is settled first, or already owned, and forms part of the security
- The lender assesses the fixed price contract, plans and specifications
- Council approval and builder's insurance are generally required before the first draw
- Funds are released stage by stage against inspection
- On completion, a final valuation is done and the loan converts to principal and interest
IS IT RIGHT FOR YOU
Building with borrowed money
This tends to suit you if
- You have a fixed price contract — with a licensed, appropriately insured builder.
- Plans and approvals are in order — which keeps drawdowns moving without stoppages.
- You hold a contingency — for variations, site costs and the things nobody anticipated.
- You can carry rent and interest together — if you are living elsewhere during the build.
Worth weighing up
- Builds run late — and delays cost money in both interest and living arrangements.
- Variations are not automatically funded — changes beyond the contract may need to come from your own funds.
- Owner-builder projects are harder to finance — fewer lenders will consider them, on tighter terms.
- Final valuation can disappoint — if the completed value comes in below the contract plus land.
How working with us actually goes
Step 1
We start with a conversation, not an application
Step 2
We work out what you can borrow and what it costs
Step 3
We prepare the application and deal with the lender
Step 4
We stay across the loan long after settlement
COMMON QUESTIONS
Questions we get asked about this
How are progress payments released?
Your builder invoices at the completion of each agreed stage. You authorise the payment and the lender arranges an inspection or valuation before releasing funds directly to the builder.
The number of stages and the documentation required vary between lenders.
What do I pay during the build?
Usually interest only on the balance drawn to date, so repayments start small and increase as the build progresses.
If you are renting or paying an existing mortgage at the same time, budget for both — that overlap is the part households most often underestimate.
Can I finance a knock-down rebuild?
Yes, though the lender will want the demolition, plans and approvals documented, and will assess the end value of the completed property.
Where there is an existing loan on the property, that needs to be worked into the structure from the outset.
What happens if the build runs over time?
Construction facilities have a set period, commonly around twelve months. Extensions are possible but not automatic, and may involve further assessment and cost.
Meanwhile interest continues on drawn funds, and any rent you are paying continues too.
Can I get a construction loan as an owner builder?
It is possible but considerably harder. Fewer lenders will consider it, loan-to-value ratios are usually lower, and you will need to demonstrate relevant experience and appropriate insurances.
If you are considering it, talk to us early — knowing which lenders will even look at it saves a lot of wasted effort.
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GET IN TOUCH
Find out where you stand before you commit to anything.
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(02) 9659 1694Important information
The information on this page is general in nature. It has been prepared without taking your objectives, financial situation or needs into account, so it is not personal advice and you should consider whether it is appropriate for you before acting on it.
Any rates, figures or examples shown are indicative only. Lending is subject to approval, and lender eligibility criteria, terms, conditions, fees and charges apply. Talk to us about what your own circumstances allow.