Construction Loan

A construction loan is a mortgage agreement designed specifically for those who are building a new home or renovations.

With a construction loan, the lender considers the total amount required to pay the builder to complete construction. This amount is then broken down into progress draws which are made at each phase of the building process to the builder. It is common that the lender will only require you to pay interest due on the amounts drawn.

The Stages of Construction

When planning with your builder, the contract should include a clear outline of the stages of building and when these stages will be complete. There are usually five stages:

  • Foundation
  • Frame and Brickwork
  • Lock Up
  • Second Fix
  • Completion

For example, your loan is for $300,000 and your first invoice is for $55,000, the interest will be calculated on your account balance of $55,000 as well as fees. Full principal and interest payments begin once the house is completed.