Construction loans explained
Progress payments, what lenders want, and where builds go wrong.
Construction Loan Calculator
During a build you pay interest only on what has been drawn, so repayments start small and climb. This shows the first and final interest-only payments, the interest paid across the build, and what the loan costs once it converts.
Is that number right for your situation?
A calculator applies one formula. Lenders apply their own, and they disagree with each other. Send us what you worked out and we will tell you how it looks against real lender policy.
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The number to budget against
The figure that matters is the converted repayment, not the interest-only ones. During the build you are paying interest on a partly drawn loan, which is comfortable. When the build finishes the loan switches to principal and interest over the full term, and that is a substantial step up from the final interest-only payment.
Most people are also paying rent throughout the build, so the overlap is the real cash flow test. Lenders assess you on the converted repayment; your own budget has to survive both at once.
How progress payments work
Lenders release funds in stages as the build progresses, typically slab, frame, lock-up, fit-out and completion. Before each release a valuer confirms the stage is genuinely finished, and the lender pays your builder directly rather than paying you.
This calculator assumes five equal stages drawn evenly. Real builds are uneven, and your builder's contract will set the actual percentages. The totals will be close, but the shape of the curve will differ. Full detail is on our construction loans page.
If you already own the land
Land you own outright counts as equity, which often means far less cash is needed than people expect. Enter the land value in the first field and its value as your deposit, and the calculator will reflect that.
Worth knowing: in New South Wales stamp duty is assessed on the land, not the finished house, which is why building can cost less in duty than buying established. Our NSW stamp duty calculator handles both, and first home buyers should check the vacant land thresholds, which differ from the house thresholds.
Common questions
Because you are charged interest only on the amount drawn so far. Each progress payment increases the balance, so each subsequent month costs more. The final interest-only payment is on the full loan.
The loan converts to principal and interest over the remaining term. This is a significant jump from the last interest-only payment, and it is the figure shown first in the results above.
Usually yes on a variable construction facility, though it is uncommon because most people are also paying rent. Once converted, extra repayments make a large difference; see the extra repayments calculator.
Construction facilities carry an expiry, often around twelve months. Extensions can usually be arranged, sometimes with a fee, and are far easier to organise in advance than at the deadline. More interest also accrues, since the drawn balance sits for longer.
Building? Match the lender to your builder
Drawdown speed and inspection turnaround matter more on a build than the rate does.
Related
First home buyers
Grants available on new builds that established homes do not get.
NSW stamp duty calculator
Duty on vacant land versus established homes.