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A Construction Loan is for people who are building a new home, although some lenders also provide the same type of loan for renovations.
In each case the loan funds are drawn down in stages as the builder reaches agreed construction milestones. The lender uses an independent expert to monitor the construction process and only makes progress payments when the builder has reached certain objectives and met satisfactory standards.
Most lenders only require interest payments on the loan during the construction phase. After completion the loan becomes a standard variable rate loan. In some cases it becomes a fixed interest loan.
A construction loan helps to minimise your mortgage repayments until the new home is completed, takes control over payments to the builder, and and reverts to a normal loan on completion of construction.
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