Every lender in Australia offers fixed-rate loans, but only a few allow you to fix them when building your home.
This is because fixed-rate loans are more complex for banks to fund, so they don’t allow you to draw down on the loan with progress payments.
Some lenders have different funding sources and are willing to offer fixed-rate construction loans. These lenders often have a few additional features, such as making extra repayments without penalty and the ability to redraw the additional amount on demand. Whether or not a lender offers you a fixed-rate construction loan also depends on the current stage of construction for your property.
Features Available With A Fixed-Rate Construction Loan
Construction loans with a fixed rate can still come with some features of traditional fixed-rate loans. Below are some of the features.
- Rate lock: Lock in your rate at the time of application to protect yourself from rate movements before the council approves your plans and construction commences.
- Progress payments: The loan can be drawn down in stages to match the required payments to your builder.
- Progress inspections: Some lenders will send a valuer to assess the building during construction before releasing progress payments.
- Fixed terms:Three or five-year fixed rate terms are available. Longer terms may be available on a case-by-case basis.
- Interest only: Repayments can be minimised during construction and converted to principal and interest repayments for the remainder of the loan term.
Note: In all cases, you must be using a licensed builder, the council must approve your building, and the lender must obtain a satisfactory on-completion valuation.
Getting Approved for a construction loan in Australia
A full construction loan guide with common mistakes and how they can be avoided.
How Much Can I Borrow?
Once you’ve decided to take out a construction loan, it’s time to figure out how much you need to borrow. The amount of money you can borrow for a construction loan will depend on several factors, including:
- First home buyer / Owner-Occupier Home loans: 95% of the land value plus the cost of construction.
- Investment loans:95% of the land value plus the construction cost.
- Renovation loans: 95% of the current house value, demolition costs, plus the cost of construction.
- Discounts:Competitive professional packages and basic loan discounts are available.
To estimate your borrowing capacity, use our borrowing power calculator.
What If The Lender Doesn’t Allow Fixed Construction Loans?
You can choose to build using a variable-rate loan, and then when the construction is complete, you can lodge a variation request to fix your interest rate.
The problem with this approach is that if interest rates change while you build, you will need to accept the new rate. This option best suits a low-doc or bad credit construction loan applicant.
Talk To A Construction Loan Specialist
Please call us on 1300 889 743 or enquire online to talk to a specialist mortgage broker who knows which lenders offer construction loans with fixed rates and to discuss which fixed term is more appropriate for you.