How A Construction Loan Works

The Construction Loan is designed to be drawn down in stages as your property is being built. This results in your monthly mortgage repayments gradually increasing as construction progresses until the building is finished avoiding high home loan repayments upfront.

Borrowers must have council approved plans and a fixed price tender from a registered builder to qualify for the Construction Loan (owner builders are acceptable at 50% loan to value ratio). If you have any equity (ie you have saved 20% of the construction cost and only borrowed 80% of the construction cost), you must use your funds first before drawing down on your Mortgage House Construction Loan.

For building contracts over $400,000 we will arrange a progress inspection at every mortgage loan drawdown request. If you would like to make any variations to your building contract, ensure you check with us before proceeding.

The construction must be completed within 6 months from the date you started, however you have 2 years to commence construction from when the Mortgage House home loan settles. Upon completion of your property, the Construction Loan reverts to a standard variable rate home loan.

Drawdowns

There are five drawdowns for a Construction Loan. These are generally:

Slab down - 15% of total construction cost
Frame up - 25% of total construction cost
External brick work completed - 20% of total construction cost
Lock up stage - 20% of total construction cost
Practical completion - 20% of total construction cost

Please note that these may vary depending on your builder and your building contract.

Loan Amounts

Minimum home loan size $100,000. No maximum home loan size.
Maximum Loan to Value Ratio 90%. Full doc home loans (exclusive of Lender's Mortgage Insurance)
Maximum Loan to Value Ratio 80%. Low doc home loans (inclusive of Lender's Mortgage Insurance)

Repayments

Until construction is complete mortgage repayments are interest only after which they may become principal and interest or remain interest only. Mortgage repayments can be made fortnightly or monthly from your nominated bank account either by direct debit or direct salary crediting.

The interest only portion is available for up to 5 years.

Split Loans

The total home loan may be split between 2 accounts after construction is finished.

This enables identification of personal and investment debt and to vary each split in terms of variable and fixed rate portions - depending on the nominated product after the construction period.