Windows/doors, roofing, brickwork, insulation How does progressive drawdown work?Ī loan drawdown process typically consists of five or six stages: A standard home loan charges you interest on the full loan amount, but a home construction loan divides your loan into stages based on what part of the building process is occuring, a method known as progressive drawdown or progress payments. This is to keep your repayments to a minimum during construction, before reverting to a principal and interest loan at the end, known as the ‘end loan’.Īn even bigger difference between construction loans and home loans is how your repayments are calculated. They typically charge interest-only repayments for the duration of the build, which is usually set at 12 months. How does a construction loan work?Ĭonstruction loans function very differently to a standard home loan. Additionally, they tend to have higher valuation fees, as the lender has to do a valuation at each stage of the construction process. Getting a loan for a home that doesn’t exist yet can be a bit trickier, so a construction loan works in conjunction with the building process and helps you pay for it.Ĭonstruction loan interest rates are typically higher than standard home loans, as it's harder for a lender to value a home that doesn't exist yet, raising the level of risk. That's where construction loans come in.Ĭonstruction loans differ greatly to a normal home loan thanks to something called progressive drawdown.Ĭheck out our guide on how construction loans work: What is a construction loan?Ī construction loan is a specific type of home loan designed to assist the funding of a new home’s construction. ![]() If you’re thinking of building a home, you might need a loan to do so.
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