Home Loans vs. Construction Loans
If you are looking to complete an extensive home renovation or expansion, build a home, or build an investment property it’s important to note a key difference between home loans and construction loans. A home loan will pay out the funds up front. A construction loan, instead, disburses the loan in 5 installments.
Paying the loan in installments allows the lender to control the funds. This saves you from paying interest on the full loan amount that has yet to have been withdrawn. This way you pay the builder of your choice as each of the 5 stages of the construction are completed. The builder simply sends an invoice to your lender at the completion of each stage. Your lender pays the builder and then sends you a monthly request to pay the interest on the amount paid out.
Once the construction is complete, you can either switch to a ‘principal and interest’ loan or if it’s an investment property, you may wish to utilise negative gearing with an interest-only loan.
NSW Mortgage Corp has helped thousands of Aussies with construction loans that have great flexibility. You can use construction loans to purchase land and construct a house, to refinance an existing loan and construct a house, to finance the construction of house on existing land or to conduct minor renovations to a new or existing property.