Construction home loans

If you’re building or renovating your home, a construction home loan is a feature that is available to help you manage the payments to your builder.

Once your new construction home loan has settled, The lender will make progress payments to your builder at each stage of construction until the construction is complete. The repayments are normally interest only.

How it works

At settlement, Land settles first and an approved set amount will be held for the build portion of the loan. This amount will be used to make the progress payments to your builder at the completion of each stage of the build, in line with your fixed price building contract.

If you’re required to contribute your own funds, this needs to be paid direct to the builder prior to submitting the first Progress Payment request to us.

Any changes made to your fixed price building contract that isn’t contributed with your own funds, will need to be reviewed and re-approved by us.

Construction must start within three months of settlement and must be completed within 24 months of settlement. We’ll send you a commencement letter at settlement, which you can provide to your builder.

When your loan is approved and at settlement, the lender will send you a Construction Pack that includes the following:
- FAQ’s including a breakdown of each stage and how to request a progress payment.
- Guidelines for each stage of construction explaining what supporting documents you need to send with each progress payment request.

Progress payments

A progress payment is one lump sum payment made to the builder only at the completion of a stage and reflects the construction progress. Payments to other suppliers cannot be made.
The construction feature will be added to the loan account of your choice and progress payments will be drawn from this account.

How banks calculate your borrowing capacity

Your repayments are made each month to repay the home loan.
Repayments will convert to principal and interest repayments when your interest only period expires.
Redraw is available on any additional payments you’ve made above your minimum repayment during the construction period. Funds being held for future progress payments cannot be accessed.

Rates

A fixed rate isn’t available during the construction period. The account with the construction feature is on a variable interest rate and interest only repayments until your interest only period expires, payments are normally deducted monthly during interest only periods, and interest is only charged on the completed stages completed.

Subject to credit approval, an interest only period may be available for a 2 year period.

Progress inspections

A progress inspection is undertaken to verify that the works have been completed in line with the schedule.

Stages of construction

There are typically five stages of construction. Progress payments will be made at the completion of each of the following stages:

Stage	Milestones	Example (% of construction costs)
1. Foundations/slab	This is when the deposit is paid to the builder This is the beginning of your construction when the foundation, or slab, is laid down.	20%
2. Frame	This is when the framework for the house goes up and the windows have been fixed in position.	20%
3. Lock-up/external lining	This includes finishing of external walls such as brick work or cladding, the final roof covering and fixing of house doors.	25%
4. Fixing/internal lining	This is when most internal works, such as installation of walls, ceilings, bathrooms and kitchen cabinets are completed.	20%
5. Practical completion	This is the last stage of construction. Your home is completed and ready to move into.	15%

How to request a progress payment

When you receive the
invoice from the builder, you’ll need to sign the invoice and authorize
the payment. To do this you’ll need to sign by all borrowers.
Email the signed and
authorized invoice and any supporting documents to your broker or the progress payment team at the selected
lender.
Please see table below which outlines supporting documents you may need to
include. Please also ensure that the email subject contains the words
‘Progress Payment’, and your application reference number, which can be
found in the subject line on your settlement email.
Once we’ve received all required documents, we’ll arrange a progress inspection if needed, and process the payment. You’ll receive a confirmation email once completed.

You’ll need to provide us
with documents at certain stages throughout the build. Failure to provide these
documents will result in delays processing the payment to the builder. Please
see table below of what documents need to be provided and when:

Document(s)	What should be included	When to provide
Builder’s tax invoice	Invoice on builder’s letterhead. Your name/s Site address Description of work completed. Builder’s account details for EFT (Electronic Funds Transfer) payment. Signed with a note ‘I/We authorise payment of this invoice.’	First, subsequent, and final progress payments AND for any additional works claims.
Building contract	Signed and dated by all parties. Current progress payment schedule supplied by the builder	On submission of Loan Application AND first progress payment
Pool contract (if applicable)	Signed and dated by all parties	First progress payment
Homeowner’s warranty insurance	Mortgagor(s) full name(s). Builder’s full name. Site address. Cover amount that is greater than or equal to the building contract amount. The insurance is current and valid prior to making the first payment	First progress payment
Contract works insurance	Builder’s full name. Cover amount that is greater than or equal to the building contract amount. Site address where insurance is a specific property cover. The state where the property is being built if the insurance is an annual policy. The insurance is current and valid prior to making the first payment.	First progress payment
Public liability insurance	Builder’s full name. Minimum cover amount greater than or equal to $2 million. Site address where insurance is a specific property cover. The state where the property is being built when the insurance is an annual policy. The insurance is current and valid prior to making the first payment.	First progress payment
Council approved plans	To be stamped and certified	First progress payment
Building insurance policy	Mortgagor(s) name/s noted as the insured party. Macquarie Bank noted as the interested party. Landlord insurance or home insurance whichever is applicable.	Final progress payment

Construction home loans