How they work
Basically, a construction loan helps you pay for your build progressively, as and when you need the funds. Once the build is complete, your loan then reverts to a regular home loan.
Say the cost of building your new home is going to be $600,000, and you’re currently paying an existing mortgage on your old house of $350,000. The last thing you want is to start paying interest immediately on the full $950,000.
This is where a construction loan helps – you are able to arrange finance for the cost of your new build, but the full amount isn’t drawn down all at once from the get go. As your build progresses, and you’re able to sign off on a certain phase of it, you can draw down only the money you need to pay for that stage of the build.
So, after 3 months of your build, you may be ready to draw down only $50,000 of the total build cost of $600,000. A construction loan lets you do this.
Basically, a construction loan is like a really large line of credit loan that helps you pay for your build as and when you need funds. Once the build is complete, your loan then reverts to a regular home loan.
Say the cost of building your new home is going to be $600,000, and you’re currently paying an existing mortage on your old house of $350,000. The last thing you want is to go into debt for $950,000.
This is where a construction loan helps – you are able to arrange finance for the cost of your new build, but the full amount isn’t drawn down all at once from the get go. As your build progresses, and you’re able to sign off on a certain phase of it, you can draw down only the money you need.
So, after 3 months of your build, you may be ready to draw down only $50,000 of the total build cost of $600,000. A construction loan lets you do this.