A construction loan is type of home or investment loan that is used to build a new property or structurally renovate an existing property.
Most lenders will want the build to start within 6 months of approval and it needs to be completed within 24 months, so you won’t want to waste too much time getting stuck in. A construction loan is generally drawn down in stages, commonly known as progress payments. These progress payments match the schedule of works in the building contract know as stages. A build is usually broken up into about 6 stages, similar to the example below:
- Deposit: This is usually 5% of the total build cost and covers the initial cost to inspect the site and apply for the development approval. Our experience has shown that it is much easier to organise to have these funds available beforehand, rather than arguing with the lender to release funds prior to formal approval. Our friendly brokers can show you how this can be achieved.
- Slab or Base Stage: The site is levelled at this stage, and the foundations and slab are laid, as well as the plumbing and waterproofing of your foundations.
- Frame Stage: During this stage, the wall frames and roof trusses are erected. It also covers partial brickwork, the roofing, electrical and plumbing rough in.
- Lockup Stage: This is the point when the house can be locked up to keep out any unwanted intruders. The external cladding should be completed, and all windows and doors installed.
- Fit Out or Fixing Stage: This is when the internal fittings and fixtures of your property are installed. It covers all internal cladding, waterproofing, skirting, cupboards and benches, electricity, plumbing and gutters.
- Practical Completion: This is the final stage where the builder will organise for you to do a “walk through” of the property with the site manager to give you an opportunity to point out any areas that still require attention. It is a wise choice to pay for a consultant to carry out a pre-handover inspection to make sure your home has been built to specification.
There are several options available with both loans, which include the interest rate choice being either fixed or variable or a combination of both with a split loan and then you can choose the repayment type being principal & interest or interest only. Please bear in mind that paying extra off an investment loan and redrawing it may have unintended tax consequences and should be discussed with a tax professional beforehand. Loan structuring is crucial with investment loans, the type of loan you choose, and the options selected will depend on your personal circumstances and should be carefully considered before a choice is made.
TAKE ACTION TODAY
Many of our clients experience savings of over $50,000 on their home loan.
To find out how Right Financial can help you save money on your home loan,
simply call us or complete the form below, and we’ll guide you through the next steps.