Construction loans are suitable for structural work in your home, for example, if you’re adding a new room or making changes to the roof.
Construction loans give homeowners the opportunity to access larger sums of money, with the amount dependent upon the expected value of the property after renovations are completed.
The advantage of a construction loan is that the interest is calculated on the outstanding amount, not the maximum amount borrowed. This means you have more money available in your kitty, but only pay interest on the money you choose to spend. For this reason, the broker may recommend that you apply for just one loan, but leave some leeway in your borrowed kitty.
When applying for a construction loan, council approval and a fixed price-building contract are required, which an MFAA finance broker can assist with to reduce the paperwork and stress.
Your lender will appoint an assessor to value your construction at each stage of the renovation. This will happen before you pay your instalment. When construction is complete, speak to your mortgage broker as you may be able to refinance back to the loan of your choice.
When looking at both these loans, the broker says consumers can call on other property they own to boost their overall borrowing amount if they wish.
“Depending on the client, they can use other property to get a line of credit and a construction loan. Or they might get a typical construction loan if there is going to be an extensive framework change on the building,” the broker says.
If you speak to a broker they will be able to determine which loan will give you the options you seek. This advice is essential, as a poorly planned construction loan could cost you more down the road.
“Consumers should ask their broker, ‘What type of loan am I eligible for?’, because if you don’t get your construction loan right, you may be jeopardising your bank security,” the broker says.
While these specific options can be discussed with your broker, if they aren’t suitable, there may be other options available to you. Speak to us to make your grand renovation plans a reality.