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What is a construction loan?

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Construction loans allow borrowers to borrow the final estimated cost of the property, and pay interest only loan repayments for the initial construction period.

Using a quote or building contract from the builder, along with council approvals, your lender will calculate the final building costs and agree on a loan amount.  The money is drawn in progressive stages according to your building contract.

The loan is interest only during the construction phase, and you only pay interest on the amount of funds you have drawn, rather than the whole loan amount. Once the house is built and you have your certificate of occupancy the loan reverts to a principle and interest loan with full repayments.  A construction loan can offer many benefits to borrowers wishing to design and build their own home, as it offers an affordable way of borrowing the funds necessary for the task and allows for additional expense whilst constructing such as rent at the same time.

Currently the First Home Buyer Grant only accommodates for people wishing to construct their first home in Victoria and is $10,000 if eligible and they are not also paying anything for an established property in Victoria currently however are offering a reduction in the stamp duty.

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