Construction loans can be complex.
Not all lenders have constructions loans.
And of those that have them, they are not all the same.
Depending on the lender, you may get charged higher interest rates or fees on a construction loan.
Construction loans work on a progressive draw down basis, usually in line with your building contract.
This means that you only pay interest on the money that has been drawn.
On a standard domestic building project the loan will generally be drawn in stages in accordance with the building contact as follows;
- Base Stage
- Frame Stage
- Lockup Stage
- Fixing Stage
There are a number of ways to finance your renovations.
The easiest way is to borrow the funds against the equity in your property, before the work is carried out.
If you don’t have equity, then the next approach is a construction loan. This is where you borrow based on the value of the property once the renovations are complete.
On small jobs, quotes from tradespersons will be suffice.
On major renovations, the lenders will require a fixed price building contract and payments are made to the builder as each stage is completed.
Using credit card / personal loans
Another option, which suits small renovations on a tight time-frame, is to pay for the works using a credit card or personal loan.
The debt is then consolidated into the home loan once the work is done.
This suits borrowers in a hurry that are doing the work themselves or are busy coordinating a number of trades people.