For the uninitiated, home loans can be pretty confusing, with all the different lenders, rates and so many different types of loans - it’s no wonder people often rely on experts like mortgage brokers to help them find a suitable deal! Plus, did you know that if you are planning to build your first home with a house and land package, you will need a different sort of loan all together? Yep, you are going to need a loan called a constuction loan.
A construction loan is the type of loan you would need to get when you purchase a house and land package … but how does it differ from a ‘normal’ home loan?
A construction loan is a unique type of home loan for people who are building their home, the main difference between a construction loan and a regular home loan is that instead of receiving a lump sum of the loan amount at settlement like with a regular home loan, the loan amount is made available in a series of progress payments, in time with the stages of construction.
Generally, these stages are:
- Slab down
- Frame up
- External brick work complete
- Lock up
- Practical completion
The payment made at each of these stages is called a draw down and interest is only charged on the amount that is outstanding in the loan balance as the home is built. So, if you have a $400,000 loan but have only drawn down $20,000, you’ll only be charged interest on that $20,000 until you make further draw downs. Once your home is finished, you will begin paying principal and interest repayments on the loan.
One of the main benefits of having a construction loans when building a house and land package, is that by paying in stages, you are only paying for work that has been completed – if work on your home stalls then you don’t need to make the next payment until the next stage is reached. You will also benefit from paying less interest and lower repayments while your new home is being constructed – more money to pay your rent or save up for furniture for your new home!
If you’d like to learn more about construction loans and how to get the best one for you, talk to the construction loan experts at Bluebay Home Loans today!