A construction loan may be most suitable if you are building your own home or investment property. Construction loans are usually interest only for the period of building and then become principle and interest once building is complete. Subject to negotiation, the interest only term can be continued. With a construction loan, your monthly repayments increase as money is drawn at each building stage to pay the builder. Along with the necessary documents that are required when applying for a loan, construction loans also require a fixed priced building contract, building specifications and council approved plans.
Advantages:
- Interest only repayments during the building period
- Competitive variable interest rates
Disadvantages:
- Some lenders will charge you a fee every time you draw money during the building period
- Construction loans require a fixed price building contract leaving little room for changes whilst building
- Given the loan is a variable rate loan, repayments may increase if interest rates go up
Download our ‘Which Home Loan’ brochure (pdf) for more tips and general information.
