There’s one major difference between standard home loans and construction loans. With the former, you receive the funds as an upfront lump-sum payment; with the latter, you receive the funds in several instalments over the course of the build.
There are generally five ‘progress payments’, at these milestones:
● Slab
● Frame
● Lock-up
● Fit-out
● Completion
During the build, your loan is interest-only, and interest is charged solely on the funds you’ve received so far (rather than the entire loan). At the end of the build, your loan generally reverts to a standard principal-and-interest mortgage.
Another difference between the two types of loans is that lending criteria may be tighter for construction loans: you’ll probably have to provide the lender with building plans, contracts and cost estimates.
Also, construction loans can have higher interest rates than home loans.
If you’re planning to build a new home, book a meeting today to discuss how to finance the project.