What are construction home loans?

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What is a Construction Home Loan?

Home renovations in Australia have taken off over the past decade. With house prices continuing to increase the idea of wither building a new home or renovating an existing home to suit your needs can be very appealing. The monetary requirements of a major renovation or constructing a new home can be quite different from purchasing property. To meet the needs of this area of the home loan and mortgage market many lenders have introduced what is known as a construction loan or sometimes a home loan with a construction facility. This can be very helpful to budding home renovators and home builders.

How Does a Construction Home Loan Work?

Construction loans are designed so that you are only required to pay a set minimum amount when each stage of building or renovation is completed. In many circumstances a construction loan will assist you to buy land, build a residential dwelling on purchased land or finalise purchasing the land and conduct any construction or renovation work necessary.

These loans are only temporary and work when a variable loan is drawn down to pay the builder in stages. Example:

  • Slab down and complete
  • Frame up complete
  • External brick work complete
  • Lock up stage
  • Practical competition

By allocating small amounts of money over the construction period to the contractor this ensures the builder isn’t being paid for work that has not yet been finished. These measures are designed to protect the borrower from any financial loss during the construction period. Loan repayments for a construction loan are interest only payable on the amount of the loan drawn down. Once the construction is complete the loan will revert to a permanent mortgage (principal and interest).

Get more info on popular variable rate home loans here. You can select the search criteria Contstruction Facility to focus on these specific types of home loans.



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