Construction home loans are exactly what they sound like. If you’re building a home or undergoing major renovations, you’re likely to need a construction home loan. Separate to those buying an already established property, construction loans differ in several ways, which can impact your bottom line.
To ensure you choose the right home loan for your new build, we turned to the experts over at Better Built Homes. As one of the best home building companies in Sydney and NSW, with thousands of completed homes across the metropolitan area, if anyone knows how to navigate the borrowing process, it’s gotta be them.
Saving on Stamp Duty
Easily one of the most significant expenses when purchasing a home, stamp duty is a tax levied against all home buyers by their relevant state or territory government. Also known as transfer duty, it’s essentially a fee paid to the government to say you own that property. How much you pay depends on the total value of your land and your house.
Add those two together, and that fee can start to add up. Fortunately, however, construction home loans avoid this entirely. Because no house has been built yet, you only have to pay for the land itself.
One of the trickiest aspects of any loan is deciphering fixed interest rates. The benefit of taking out a construction home loan is that borrowers have the option to lock in an interest rate with their lender. And with Australian interest rates at record lows, now is the time to consider locking things down to avoid any potential rate rises down the road. To ensure you find the best deal for a fixed-rate mortgage, shop around and do your research.
Lower Interest Repayments
This is easily one of the most beneficial aspects of the home loan construction process. Unlike a standard mortgage that requires interest repayments on the total amount borrowed, construction home loans only require payment on the cost of the stage of construction that you’re currently at. This is known as a progressive drawdown.
We’ll run you through a quick comparison to explain how these progressive payments work.
On a standard home loan of $600,000, the borrower must pay interest on the entire loan amount. Whereas with a construction home loan, you only pay for what is being charged.
For example, if your home builder charges $100,000 for foundations, you’ll only be charged interest on that $100,000 for the duration of that stage of construction. If the second stage costs another $100,000, you’ll then be charged interest on the new total cost ($200,000) and so on, and so forth till you reach the total amount of your loan.
Interest-Only Payment Period
New home construction loans typically begin with a temporary interest-only payment period. While this can be a massive cost-saving, it is intended to ensure construction costs do not exceed your budget. After this period is over, typically after construction, your loan will revert back to a standard principal and interest loan.
If you’re ready to get started on your dream home, check out Better Built Homes for a wide range of modern home designs and a long list of luxury home inclusions. Chat to their highly-trained customer service team on 1300 100 922 or check out their display homes at Yobarnie Avenue, North Richmond.