Comparing Construction Home Loans & Rates

Thinking of building a brand new home, or planning a major renovation? Home construction loans are designed to help you get there.

At Rateseeker, you have instant access to the same tools that Australia’s leading lenders use. Work with us and we help you compare home loan rates and refinance home loans across 30+ Australian lenders.

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Construction Loans

How a construction loan can help you build

  1. The home construction loan is released in stages as the construction process progresses. This is more commonly known as making progress payments. (Like repayments, but on a new build instead of an existing property). Progress payments allow you and your lender to monitor the build and ensure you are only paying for completed work. 
  1. You only pay the interest of your loan until the construction has been completed. You aren’t required to make repayments on your full loan amount during the construction period. This means you have extra money handy for unexpected expenses while you’re building. 
  1. If you’re planning on doing a big renovation, a construction loan may be for you. They aren’t just great for building a new home, this loan type can be good for your next major renovation project. 

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Advantages & Disadvantages

Home construction loans are one of the most popular home loans available to those who wish to build a new property from scratch. While it has similarities to a regular home loan, there are specific features that make construction loans attractive if you’re planning to build a house. 

Construction loans allow you to stagger payments to your builder, once the agreed development and construction stages have been met. To homeowners, this is crucial because you will be only charged interest on the amount you have paid- which can save you on significant costs. Once your new home has been built, the loan reverts back to a standard variable home loan. 

There are several advantages to consider if you believe this type of loan is most suitable for you. Advantages and disadvantages are as follows:

Advantages:

  • Funds are paid to you in drawdowns. This ensures that you only pay the interest portion of the mortgage you have used. 
  • You have the option to make interest-only payments for the land portion prior to and during the development stages. 
  • You have 24 months to complete the construction after the settlement of the land- this provides plenty of time for you to plan things out. 
  • The construction loan can be split between two accounts once construction has been completed. This allows you to identify personal and investment debt. 

Disadvantages

  • If you are an owner builder, you will need a maximum loan-to-value ratio (LVR) of 50%. 
  • Funds will only be released at predetermined stages, once proof of construction has been established.
  • There are many terms and conditions that need to be considered, including having council-approved plans, and having a fixed price tender during the time of application. 

→ Learn More: Calculate an estimated cost on interest rates and repayments 

Is a construction loan right for you?

When you’re searching for construction loan rates, it’s important to research the interest rates that are most suitable to your financial lifestyle. 

When you’re planning on building a new home, it’s important to consider the details. 

And just like choosing the facade of your home and picking out the best interior options, details of your construction mortgage are also important. It’s essential to have a clear understanding of your repayments over the life of the loan, including how much interest will be. Our loan calculators are easy to use, available to you 24/7 and can help you estimate your repayments for you. 

While they are only a guide, they can give you a clear understanding of how much your repayments will be at the current interest rate level, or the rate increases on your variable home loan repayments. They can also help you figure out how much you will be able to borrow and whether or not you may have to pay stamp duty. 

Struggling to make payments? Use any of our free calculators to help you estimate your next purchase and refinance, or head on over to our FAQs for more information about home construction loans.

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FAQs about Comparing Construction Home Loans & Rates

What is a construction loan?

Construction home loans are a type of loan designed for people who are interested in building a new home, or for major renovations as opposed to purchasing an established property. It has a differing structure compared to home loans for people buying an existing home.

How do construction loans work?

Construction loans have different structures, rates and are generally more complex as they come with more lender involvement compared to standard home loaners.

How much deposit do I need for a construction loan?

You will typically need at least a 5% deposit minimum to qualify for a construction loan. Keep in mind that you may have to pay lender’s mortgage insurance if your deposit is less than 20%. A larger deposit can help to convince your lender that you are a less risky borrower.

Can a first time home buyer get a construction loan?

First time home buyers are eligible to get a construction loan. They can use it to help finance their home.

How do you get a construction loan?

To qualify for a construction home loan, you will need at least a 5-10% minimum deposit and factoring in additional costs like LMI, conveyancer fees and other miscellaneous costs. You'll be asked if whether you’re going to build your home yourself (ie. owner-builder) or use a registered builder. Requirements differ. You will also have to provide a suite of documents to your lender. These can include the following.

Are construction loan rates higher?

Construction loan interest rates are usually higher than traditional mortgages. This is due to the lender not having a tangible asset to secure your loan; they’re just expecting a residence to be constructed.

Why choose Rateseeker for construction loans?

With over 20+ years of experience in the mortgage broking industry, Rateseeker has assisted many Australians to better understand their financial decisions, and lead them to the right home loan that best suits their lifestyle. We’re on a mission to empower every Aussie, educating them along the way to ensure they know exactly what to do to get the dream home they’re after. Our easy-to-understand online approach provides you with an estimate on how much you need to borrow to buy the property you always wanted, including new builds. Contact us today and discover what Rateseeker can do for you.

Meet one of our experts

Director of Rateseeker
Director Nick Chong

As a founder of Ardent Capital Group, Nick Chong brings more than 12 years of financial planning and mortgage broking experience. This, together with his strong economics background, gives him the expertise to lead his handpicked talented team of advisers.

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