Jack Han reports on the new trend for construction home loans.
December 1, 2009
The housing shortage is crippling Australia, according to experts who believe that the undersupply of properties will cause future suffering for home buyers. Many home loan borrowers are now considering taking up construction loans to save on costs and help with building more homes for future generations.
The Federal Government has already introduced a $6.4 billion stimulus commitment to build more social and community housing, which is estimated to add 20,000 homes. However, critics have commented that this falls short of the 250,000 houses needed to meet current demand, as well as the future needs of our growing population.
Australian Council of Social Service CEO Clare Martin thinks that housing stress should be a social policy priority.
“Some 850,000 Australians are in housing stress, with rental costs gobbling up a high proportion of their income,” Martin was quoted on news.com.au.
“Add to that the 105,000 Australians who are homeless and you start to get a real idea of how big the problem is.”
With only 73 homes completed under the government’s plan so far, home buyers can understand the gravity of the issue, and those who are stepping into the role of social activists are taking matters into their own hands.
By seeking out construction home loans, home buyers are attempting to save thousands by purchasing land and constructing their own home, rather than buy an established home.
The difference between a construction loan and a standard home loan is that rather than making monthly repayments which stop after a certain term, construction loans are usually paid in stages. These stages of payments (or draw downs) include the initial purchase of the land, as well as a key construction stages.
Additionally, borrowers can save thousands in interest because they only pay interest on the amount that they ‘draw down’. For example, if you borrowed $500,000 for a house and land package, but have drawn down of only $250,000 to pay for a piece of land, then you will only pay interest on the $250,000, instead of the full amount, cutting your repayments by half before the house is built.
The cost is time spent waiting, so while purchasers of established homes can move in right away, home buyers wishing to build will need to wait sometimes years for their home to be complete.
However, with the undersupply problem worsening over time, home buyers will need to take initiatives to make savings where they can, including building their own home to avoid rising house prices. Start comparing construction loans today for the lowest interest rates, and create your perfect home the way you have always pictured it.