Construcion Loans

Construction loans in Australia differ significantly from standard home loans. Here’s a breakdown of how they work:


  • Progressive Drawdowns: Unlike a lump sum payment in a regular home loan, construction loans release funds in stages throughout the building process. These stages are typically aligned with milestones in construction, like completing the foundation or framing.
  • Interest-Only Period: During construction, you’ll usually only pay interest on the amount of money drawn down. This helps manage cash flow while the house is being built and you might not be living there yet.
  • Repayment Loan: Once construction is complete, the loan converts to a standard repayment loan with principal and interest repayments.


  • Manages Cash Flow: You only pay interest on the used funds, reducing the financial burden during construction.
  • Matches Payments to Progress: Payments are released as construction progresses, ensuring builders get paid for completed work.

Things to Consider:

  • Exit Fees: Some lenders may charge exit fees for switching from a construction loan to a standard home loan.
  • Interest Rates: Construction loans may have slightly higher interest rates compared to standard home loans.
  • Accurate Cost Estimates: Having a realistic budget and accurate cost estimates for each stage is crucial to avoid needing additional funds and potentially higher repayments.
  • Progress Inspections: Lenders typically require inspections to verify construction progress before releasing the next drawdown.

Here’s an example:

  • You have a $500,000 construction loan approved.
  • The first stage (foundation) costs $100,000.
  • You only pay interest on the $100,000 drawn down, not the full $500,000.
  • Once the foundation is complete and inspected, the next drawdown for the next stage can be requested.