Understanding Construction Loans for Your Extension Project
Planning a home extension in Templestowe? You're in the ideal location with excellent property values and council support for well-planned renovations. When applying for a loan to fund your extension, construction loans offer a flexible solution that aligns payments with your project timeline.
Unlike traditional home loans, construction loans only charge interest on the amount drawn down at each stage. This means you're not paying interest on the full loan amount from day one, making it a cost-effective option for major home renovations.
How Progressive Drawdown Works
Construction loans operate through a progressive drawdown system, releasing funds at various stages of the project:
• Foundation and slab completion
• Frame and roof installation
• Internal fit-out including plumbing and electrical work
• Final completion and handover
Each drawdown requires inspection and approval, ensuring your project meets construction milestones before additional payments are released. This protects both you and the lender throughout the building process.
Interest Rate and Repayment Structure
During construction, most lenders offer interest-only repayment options. You'll typically pay a higher interest rate than standard home loans, reflecting the increased risk of construction projects. However, Premier Path Finance can access Construction Loan options from banks and lenders across Australia, helping you find competitive rates.
Once construction is complete, the loan typically converts to a standard home loan with principal and interest repayments at more favourable rates.
Ready to get started?
Book a chat with a Finance & Mortgage Broker at Premier Path Finance today.
Planning Your Extension Project
Before applying for a loan, make a plan that includes:
- Council requirements - Ensure your extension complies with council restrictions and obtain necessary permits
- Professional contractors - Engage qualified plumbers, electricians, and a registered builder
- Fixed price contracts - Lenders prefer certainty in project costs
- Progressive Payment Schedule - Align with your builder's payment requirements
The Application Process
The streamlined application process typically requires:
• Council plans and development application approval
• Fixed price building contract
• 'As if complete' valuation of the finished property
• Evidence of your ability to service the loan amount
• Details of your registered builder and sub-contractors
Lenders will assess your application based on the projected value of your completed extension, not just the current property value.
Understanding the Costs
Beyond the loan amount and interest rate, consider these additional costs:
• Progressive Drawing Fee for each drawdown (typically $300-500 per draw)
• Valuation and inspection fees
• Out of Contract Items not included in your building contract
• Council fees and permit costs
Your renovation Mortgage Broker can help you understand all associated costs upfront, preventing surprises during construction.
Timeline Considerations
Most lenders require you to commence building within a set period from the Disclosure Date, typically 6-12 months. This ensures the loan remains aligned with current property values and construction costs.
Instalment payments follow your Progressive Payment Schedule, usually requiring 10-14 days notice for each drawdown. Planning these payments in advance helps maintain smooth project flow.
Making Your Extension Dream Reality
Whether you're adding a new living area, extra bedrooms, or modernising your kitchen, construction loans provide the financial flexibility to complete your vision. Unlike buying off the plan or house & land packages, extensions allow you to enhance your current home in your preferred location.
A home improvement loan might seem like an alternative, but for substantial extensions, construction loans offer better loan amounts and terms tailored to building projects.
Extensions in Templestowe continue to add significant value, making them worthwhile investments when financed appropriately. Working with experienced professionals ensures your project meets all council regulations while staying within your price range.
Ready to transform your Templestowe home with an extension? Premier Path Finance specialises in construction loans and understands the local market conditions. Our team can guide you through the application process and help secure funding that matches your project timeline and budget.
Call one of our team or book an appointment at a time that works for you to discuss your extension project and explore your construction loan options.
