Construction home loans

Construction Home Loans

A construction loan funds a new build in stages. Instead of releasing the full amount on day one, the lender pays your builder as each stage is finished.

You usually pay interest only on the amount drawn so far. Once the home is complete the loan switches to normal principal and interest repayments.

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How a construction loan works

Your lender approves the total loan up front, based on the land value plus the building contract. Funds are then released in stages as your builder completes each part of the job, with the lender often inspecting before paying. You pay interest only on what's been drawn, so repayments start small and grow as the build progresses.

Typical progress payments

Deposit when you sign the building contract
Base or slab
Frame
Lock-up
Fixing
Practical completion

Stages and percentages vary between builders and lenders.

Benefits of a construction loan

Pay as you build: funds are released only when each stage is done.
Lower interest during the build: you pay interest only on the amount drawn.
Checks along the way: lender inspections help keep the project on track.

Tips before you sign

Keep a cash buffer for variations
Check how long the lender allows for construction
Ask how first home buyer grants and concessions apply to new builds

We compare construction lenders on policy as well as rate, because how a lender handles progress payments matters as much as the price. See also renovation loans, first home buyer support and the interest only repayment calculator.

Frequently asked questions

Do I pay interest on the full loan while building?

No. You usually pay interest only on the amount drawn down so far. As each progress payment is made, your repayments rise. Once building is finished the loan converts to principal and interest.

What if the build costs more than the contract?

Lenders lend against the contract price and valuation. Variations or cost blowouts generally need to be paid from your own funds before the lender releases further stages, so keep a buffer.

Can I use a construction loan for a knockdown rebuild or renovation?

Yes. Construction loans are used for new homes, knockdown rebuilds and major structural renovations. The lender will want plans, a fixed-price contract and approvals before releasing funds.

Planning a build?

We'll compare construction lenders and help you get your paperwork in order before you sign.

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