Construction loan rates

Looking to compare low-rate home loans for your new build? Below are a handful of low-rate loans that can be used for construction.

Lender

Variable
More details
GET A DISCOUNTED GREEN RATE
  • Interest Only during construction
  • No monthly, annual or ongoing fees
  • Get Australia’s lowest rate construction loan when you go green
GET A DISCOUNTED GREEN RATE

Green Construction Home Loan (Interest Only)

  • Interest Only during construction
  • No monthly, annual or ongoing fees
  • Get Australia’s lowest rate construction loan when you go green
Variable
More details
100% FULL OFFSET ACCOUNT
100% FULL OFFSET ACCOUNT

Offset Package Home Loan (Principal and Interest) (LVR < 60%)

    Variable
    More details
    BUNDLE YOUR HOME LOAN AND YOUR INVESTMENT LOAN FOR MORE SAVINGS
    BUNDLE YOUR HOME LOAN AND YOUR INVESTMENT LOAN FOR MORE SAVINGS

    Yard Investor Bundle Loan (Bundled with Home Loan)

      Variable
      More details
      AN EASY ONLINE APPLICATION
      AN EASY ONLINE APPLICATION

      Yard Investment Loan (Principal and Interest) (LVR < 80%)

        Variable
        More details
        100% FULL OFFSET ACCOUNT
        100% FULL OFFSET ACCOUNT

        Offset Package Home Loan (Principal and Interest) (LVR 60%-70%)

          Variable
          More details
          GREAT FLEXIBLE LOAN OPTIONS
          GREAT FLEXIBLE LOAN OPTIONS

          Basic Home Loan (Principal and Interest) (LVR 70%-80%)

            Variable
            More details
            FREE REDRAW FACILITY
            • Pay more to reduce the amount of interest you pay
            • Easily access additional funds in your redraw
            • Great rates and low fees
            FREE REDRAW FACILITY

            Basic Investment Loan (Principal and Interest) (LVR < 60%)

            • Pay more to reduce the amount of interest you pay
            • Easily access additional funds in your redraw
            • Great rates and low fees
            Variable
            More details
            • Pay more to reduce the amount of interest you pay
            • Easily access additional funds in your redraw
            • Great rates and low fees

            Yard Investment Loan (Principal and Interest) (LVR > 80%)

            • Pay more to reduce the amount of interest you pay
            • Easily access additional funds in your redraw
            • Great rates and low fees

            Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of June 27, 2022. View disclaimer.

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            What is a construction loan?

            A construction loan is a specific type of home loan designed to assist the funding of a new home’s construction. When it comes to the standard home loan, they usually only apply to existing properties. Getting a loan for a home that doesn’t exist yet is a bit trickier, so a construction loan works in conjunction with the building process and helps you pay for it.

            Are construction loan rates higher?

            Although not always the case, building loans tend to have higher interest rates than standard home loans on average. These interest rates might be higher than a standard home loan since it’s harder for a lender to value a home that doesn’t yet exist, which adds an element of risk. To compensate for this risk, lenders tend to up the interest rate.

            In addition to the higher interest rate, building loans can also have higher fees too. A common one is a valuation fee, which can be more costly with a building loan since the lender has to do a valuation of your property after each stage of the construction process (more on this below). There can also be higher administration fees and upfront fees

            How does a construction loan work?

            Construction loans, also known as building loans, function very differently to a standard home loan. For one, they typically charge interest-only repayments for the duration of the build, which is initially set at 12 months in most cases. This is to keep your repayments to a minimum during construction, before reverting to a principal and interest loan at the end, known as the ‘end loan’. 

            An even bigger difference between construction loans and home loans is how your repayments are calculated. A standard home loan charges you interest on the full loan amount, but a home construction loan divides your loan into stages based on what part of the building process is occurring, a method known as progressive draw-down or progress payments.


            Construction loan payment process: loan drawdown explained

            Varying from lender to lender, a loan drawdown process usually consists of five to six stages, which might look something like this: 

            Stage Includes
            Deposit Paying the builder to begin construction
            Base Concrete slab complete or footings 
            Frame House frame complete and approve
            Lockup Windows/doors, roofing, brickwork, insulation
            Fixing Plaster, kitchen cupboards, appliances, bathroom, toilet, laundry fittings/tiling etc.
            Completion Fencing, site clean-up, final payment to builder

            This is just one example, but you get the idea. If one of these stages (such as the base) costs $100,000, then for the duration of that stage you’ll only be charged interest on that $100,000. If you then draw down an extra $100,000 to pay the builder for the next stage (the frame), your repayments will now be based on the interest costs of $200,000. So essentially, funds from your approved loan amount are only charged interest as they are paid to the builder (drawn down).     

            This can save you a significant amount of money in interest during the building period.


            How do construction loans work for renovations? 

            Normally when doing smaller cosmetic renovations you can use other strategies like accessing the existing equity in your home, using extra repayments you’ve made via a redraw facility or just by using cash or other financial products like personal loans. But for larger structural renovations (like adding a garage or a new deck), you might need to use a construction loan. If the renovation project is big enough (e.g. over $200,000), you might even be required to refinance your entire home loan to a construction loan.

            You might need a construction loan to construct your new pool. 
            Source: YouTube


            Construction loan pros and cons 

            Before you hoover up that vacant block of land and decide to build a property on it, it’s important to understand the fundamentals of a construction loan, especially the general advantages and disadvantages. Here is a quick list of the pros and cons of construction loans. 

            Pros

            1. Reduced interest payments 

            Thanks to the progressive draw-down method of payment, you only incur interest on the amounts used to pay for the construction so far, as opposed to being charged interest on the full loan amount from day dot. This can result in lower interest costs overall, and should the worst happen and the construction gets abandoned, you don’t pay interest on construction that never happens. 

            2. Interest-only payments at first 

            Many construction loans are also interest-only at first, which can also result in lower initial repayments. This is only temporary, however.

            3. Protection from shoddy workmanship 

            Since payments are staged with construction loans, the quality of the works is assessed by the lender at each stage. If the quality of the work has been poor, they can identify this and save you from wasting thousands of dollars on a sub-par house. 

            4. Stamp duty can be cheaper 

            Stamp duty is something that most home buyers have to pay, but with a construction loan, stamp duty is only actually paid on the land, not the home itself. This can make it cheaper than buying an existing house – if you bought a block of land for $250,000 and spent another $300,000 building the house, you’d ‘only’ pay stamp duty on the $250,000 for the initial land purchase. 

            Cons

            1. Constructing a property can be risky 

            Building a new property from scratch can obviously attract risks that buying an existing one simply doesn’t. For one, you can quite easily go over-budget for a number of reasons during construction, and construction can be delayed due to weather. Furthermore, the final product might not be worth what you thought it would be, or even what the lender thought it would be. 

            2. Higher rates and fees

            As mentioned before, construction loans often come with higher interest rates and costlier fees, which is why you need to look around for a good value construction loan. 

            3. Higher loan-to-value ratios 

            Construction loans can also require lower LVRs (loan-to-value ratios), which means you may need extra cash or equity to stump up a higher deposit. 

            4. They can be slow 

            Not only can it be time-consuming to begin construction thanks to the mountain of paperwork you have to provide, but the draw-down progressive payment style of construction loans means it can take ages to move from one stage to the next since each one typically needs lender approval.

            Can you just use a home loan for a construction?

            You can use a ‘standard’ home loan to construct a new property – you just might need to have an existing home loan or two already. 

            You can use the equity in an existing home loan to borrow the amount you need to fund the construction of the new property, whether that equity is from an owner-occupied property or an investment one. 

            This method can be beneficial for paying construction costs when they fall due and other smaller costs that pop up, but can be more expensive since you’re paying interest on the entire loan from day one instead of in various stages. 

            Compare Home Loans   


            How do you get a construction loan?

            Applying for a construction loan is different from applying for a home loan. While most lenders who offer home loans also offer construction loans, it’s not quite as simple as the home loan application process (if you can even call that simple!). 

            Building home loan requirements

            In addition to the usual documents needed for a home loan application (proof of ID, proof of income & employment, lists of assets, liabilities and expenses etc.), your chosen lender will also require the following: 

            • Council plans and permits 
            • Proof you’ve purchased the land 
            • A contract with a licensed builder (if you’re building the home yourself you must specify this) 
            • Completed building plans 
            • Proof of builder’s insurance

            Not everything is included in the construction. If you require additional work done for things like swimming pools, sheds or garden beds then you’d also need to provide quotes for these upfront. The more qualified the builder and the architects who do up your blueprints, the better that will look to the lender as well. 

            Once they have all this, the lender might send someone out to value the land and give an approximate valuation of the soon-to-be-completed home. Once they receive this valuation, the lender may then give you the authority to proceed by approving you for a loan. When this is done the usual process follows: you’ll need to make a deposit on the property just like you would with a regular home loan. 

            Larger deposits go a long way to convince a lender of your trustworthiness, as does: 

            What happens when the construction period ends

            Generally, when the construction period ends, the construction loan reverts to a standard home loan, which is confusingly referred to as an end loan sometimes. If you chose ‘principal and interest’ as your payments type, your repayments will now begin to pay down the principal of the loan, which will see your regular repayment amount increase significantly. This change can be quite shocking, so be prepared. 


            Low rate mortgages

            Lender

            Variable
            More details
            UNLIMITED REDRAWSSPECIAL OFFER
            • Fast turnaround times, can meet 30-day settlement
            • For purchase and refinance, min 20% deposit
            • No ongoing or monthly fees, add offset for 0.10%
            UNLIMITED REDRAWSSPECIAL OFFER

            Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

            • Fast turnaround times, can meet 30-day settlement
            • For purchase and refinance, min 20% deposit
            • No ongoing or monthly fees, add offset for 0.10%
            Variable
            More details
            100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES
            • No upfront or ongoing fees
            • 100% full offset account
            • Extra repayments + redraw services
            100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

            Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

            • No upfront or ongoing fees
            • 100% full offset account
            • Extra repayments + redraw services
            Variable
            More details
            ZERO APPLICATION FEESFEE FREE OFFSET
            • We lower your rate based off how much you’ve paid down your loan
            • Automatic rate match
            • No upfront or ongoing fees
            • The shorter your loan, the less interest you pay in the long run.
            ZERO APPLICATION FEESFEE FREE OFFSET

            Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

            • We lower your rate based off how much you’ve paid down your loan
            • Automatic rate match
            • No upfront or ongoing fees
            • The shorter your loan, the less interest you pay in the long run.
            Variable
            More details
            AN EASY DIGITAL APPLICATION
            • No ongoing fees - None!
            • Unlimited additional repayments
            • Easy online application, find out if you're approved quick!
            • Redraw- Access your additional payments if you need them
            • Use the app to get loan insights to help you pay off your home loan faster
            AN EASY DIGITAL APPLICATION

            Neat Variable Home Loan (Principal and Interest) (LVR < 60%)

            • No ongoing fees - None!
            • Unlimited additional repayments
            • Easy online application, find out if you're approved quick!
            • Redraw- Access your additional payments if you need them
            • Use the app to get loan insights to help you pay off your home loan faster
            Variable
            More details
            NO APPLICATION FEES
            • No ongoing fees - None!
            • Unlimited additional repayments
            • Easy online application, find out if you're approved quick!
            • Redraw- Access your additional payments if you need them
            • Use the app to get loan insights to help you pay off your home loan faster
            NO APPLICATION FEES

            Yard Home Loan (Principal and Interest) (LVR < 80%)

            • No ongoing fees - None!
            • Unlimited additional repayments
            • Easy online application, find out if you're approved quick!
            • Redraw- Access your additional payments if you need them
            • Use the app to get loan insights to help you pay off your home loan faster
            Variable
            More details
            NO UPFRONT OR ONGOING FEES
            • No ongoing fees - None!
            • Unlimited additional repayments
            • Easy online application, find out if you're approved quick!
            • Redraw- Access your additional payments if you need them
            • Use the app to get loan insights to help you pay off your home loan faster
            NO UPFRONT OR ONGOING FEES

            Owner Occupier Accelerates - Evaporate (LVR 60%-70%) (Principal and Interest)

            • No ongoing fees - None!
            • Unlimited additional repayments
            • Easy online application, find out if you're approved quick!
            • Redraw- Access your additional payments if you need them
            • Use the app to get loan insights to help you pay off your home loan faster
            Variable
            More details
            NO UPFRONT OR ONGOING FEES
            • No ongoing fees - None!
            • Unlimited additional repayments
            • Easy online application, find out if you're approved quick!
            • Redraw- Access your additional payments if you need them
            • Use the app to get loan insights to help you pay off your home loan faster
            NO UPFRONT OR ONGOING FEES

            Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 80%)

            • No ongoing fees - None!
            • Unlimited additional repayments
            • Easy online application, find out if you're approved quick!
            • Redraw- Access your additional payments if you need them
            • Use the app to get loan insights to help you pay off your home loan faster
            Variable
            More details
            UNLIMITED EXTRA REPAYMENTS
            UNLIMITED EXTRA REPAYMENTS

            Basic Home Loan (Principal and Interest) (LVR < 60%)

              Variable
              More details
              EASY DIGITAL APPLICATION
              EASY DIGITAL APPLICATION

              Neat Variable Home Loan (Principal and Interest) (LVR 70%-80%)

                Variable
                More details
                $0 APPLICATION FEE
                $0 APPLICATION FEE

                Budget Home Loan (Principal and Interest) (LVR < 80%)

                  Variable
                  More details
                  100% FULL OFFSET ACCOUNT
                  100% FULL OFFSET ACCOUNT

                  Offset Package Home Loan (Principal and Interest) (LVR < 60%)

                    Variable
                    More details
                    LIMITED TIME OFFER
                    • Fast turnaround times, can meet 30-day settlement
                    • No ongoing or monthly fees, add offset for 0.10%
                    • Extra repayments + redraw services
                    LIMITED TIME OFFER

                    Smart Booster Home Loan Discounted Variable - 1yr

                    • Fast turnaround times, can meet 30-day settlement
                    • No ongoing or monthly fees, add offset for 0.10%
                    • Extra repayments + redraw services

                    Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of June 27, 2022. View disclaimer.

                    Savings.com.au’s two cents 

                    Constructing a new house represents a much greater challenge than buying an existing one, which is already hard enough. This is why you need to do a thorough comparison of construction loans based on their interest rates, fees and the loan your construction loan will eventually revert to.

                    But in addition to choosing the right construction loan, you also need to take care to find qualified builders, surveyors, architects and solicitors. Not only will this ensure everything goes smoothly, but the right people can improve your chances of getting a better interest rate and can ensure your property gets built properly.