Building your dream home in Terrigal's ideal location requires more than just finding suitable land and creating council plans. Understanding construction loan features is crucial for making informed financial decisions throughout your building journey.
What Makes Construction Loans Different
Construction loans operate differently from traditional home loans. Unlike standard mortgages where you receive the full loan amount upfront, construction loans provide funding through a progressive drawdown system. This means you only charge interest on the amount drawn down at each stage, making it more cost-effective during the building process.
The key advantage is that you're not paying interest on the entire loan amount from day one. Instead, you make interest-only repayment options during construction, with payments increasing as each milestone is reached and additional funds are released.
Progressive Drawdown and Payment Structure
The progressive drawdown system aligns with construction milestones, ensuring funds are available when needed. Here's how it typically works:
• Foundation stage: First drawdown after site preparation and foundation completion
• Frame stage: Release of funds for structural framework
• Lock-up stage: Payment when the building is weatherproof
• Fit-out stage: Funds for internal fixtures and fittings
• Completion: Final payment upon practical completion
Each stage requires inspection and approval before the next instalment is released. This protects both you and the lender by ensuring work meets required standards.
Understanding Valuation Methods
Construction loans use an 'as if complete' valuation method. This means the property is valued based on its projected worth upon completion, not its current state. This valuation determines your maximum loan amount and helps lenders assess the project's viability.
Key Features to Consider
When exploring construction loan options, several features deserve attention:
Application Process: Many lenders offer a streamlined application process specifically designed for construction projects. This includes provisions for reviewing council plans, permits, and development applications.
Builder Requirements: Most lenders require a registered builder for the project. This ensures work meets industry standards and provides additional security for the loan.
Interest Rate Options: Construction loans may offer variable or fixed interest rate options. During construction, you'll typically pay interest only on drawn amounts.
Progressive Drawing Fees: Each drawdown may incur a Progressive Drawing Fee, typically ranging from $300 to $500 per inspection and release.
Types of Construction Projects Covered
Construction loans can finance various building projects:
• New build on vacant land
• Major home renovations requiring council approval
• House & land packages
• Buying off the plan developments
• Projects requiring you to demolish existing property
For smaller projects, a home improvement loan might be more suitable than a full construction loan.
Important Timing Considerations
Most construction loans require you to commence building within a set period from the Disclosure Date, typically 6-12 months. This ensures the loan remains relevant to current market conditions and building costs.
It's essential to make a plan that accounts for:
• Council approvals and permit timeframes
• Builder availability and scheduling
• Weather conditions that may affect construction
• Material availability and supply chains
Working with Contractors and Payments
Construction loans are designed to pay sub-contractors and suppliers according to the Progressive Payment Schedule. This schedule should align with your fixed price contracts and account for all major construction phases.
Your registered builder will coordinate with plumbers, electricians, and other specialists. However, be aware that Out of Contract Items not included in your original agreement may require additional funding arrangements.
Accessing Construction Loan Options
As experienced mortgage brokers serving Terrigal residents, we can access Construction Loan options from banks and lenders across Australia. This broad access ensures you receive suitable terms and competitive pricing for your specific project.
Our team understands local council restrictions and regulations that may affect your building project. We work with you to ensure your loan structure aligns with your building timeline and budget requirements.
Whether you're planning a new build in Terrigal's sought-after price range or undertaking major renovations, understanding these construction loan features helps you make informed decisions. The right loan structure can significantly impact your project's success and your financial position during and after construction.
Call one of our team or book an appointment at a time that works for you to discuss your construction loan requirements.
