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Are do you know what is just a construction loan?

Friday, February 28th, 2020

Are do you know what is just a construction loan?

A construction loan is a home loan created especially for people who develop their own house, instead than purchase a thing that’s been built.

It’s perhaps unsurprising then that these loans provide sufficient freedom to smooth out of the most frequent monetary speed bumps any project will probably strike as you go along.

Here’s what you should understand.

Construction loans may be tricky. Photo: Getty

How can a construction loan work?

Construction loans typically offer progressive drawdown, which fundamentally means the financial institution will pay your loan in small chunks – as so when each stage is completed by you of construction – in the place of in a lump sum payment at the start of any project. Most construction loans also provide a preliminary interest-only repayment period – at least for the duration of the construction.

The advantage of this set-up is as you only pay interest on the amount of money you have drawn down, not the total loan amount that it minimises your monthly repayments. Therefore, in the event that total loan quantity is $300,000, you’ve just been provided $50,000, you are going to pay just interest regarding the $50,000 until you’re given more income.

Presuming you meet with the bank’s financing requirements and offer all necessary paperwork, you’ll be compensated upon commencement of each and every associated with following five major building phases.

  • Base – the stage that is first laying the inspiration of one’s property and includes tangible slab, footings, pad and base brickwork. (more…)