How a construction loan works

Progress payments, interest during build, IO-then-P&I conversion. The mechanics that separate a construction loan from a standard home loan.

11 min readBy Sarah ChenStage 2 of 6

A construction loan starts as a partial drawdown and grows with the build. You only pay interest on what’s drawn.

The five progress payments

Slab, typically 15–20% of build cost.
Frame, typically 15–25%.
Lock-up, typically 20–30%.
Fix-out (cabinets, plumbing, electrical), typically 15–25%.
Practical completion, typically 5–15%.

WARNING: This comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees, or other loan amounts might result in a different comparison rate. Comparison rates are based on a secured loan of $30,000 over 5 years for vehicle finance and $50,000 over 5 years for equipment finance, as required under the National Credit Code.