What is a construction loan and how does it differ from a home loan?

A construction loan is designed for building or renovating and releases funds in progressive stages such as slab, frame, lock-up, fit-out, and completion. Interest is only charged on the funds drawn. A home loan, however, is a single lump-sum payment used to purchase an existing property.

Can I get a construction loan for a major renovation in Sydney?

Yes. Lenders across NSW offer construction-style loans for major renovations if you have a licensed builder’s contract, approved plans, and all required permits.

Are construction loans more expensive than home loans?

Typically, yes. Lenders treat construction loans as higher risk because of variable build times and costs. As a result, interest rates and fees can be slightly higher than standard home loans.

When do repayments start on a construction loan?

Repayments begin once the first stage funds are drawn. You’ll usually pay interest-only during construction, then convert to principal and interest once the project is completed.

What happens after a construction project is finished?

After final inspection and certification, your construction loan converts into a standard home loan. The property value is reassessed, and the loan terms adjusted accordingly.

How does the loan structure affect my renovation project delivery?

Staged payments align with your builder’s schedule, ensuring steady cash flow and limiting interest costs to funds actually drawn, keeping the project efficient.

Can a home loan be used for an extension or major renovation?

It can, but it’s often less efficient. A home loan starts full repayments immediately, while a construction loan releases funds progressively, better matching the pace of renovation work.

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