A construction home loan allows borrowers to access funds to build their homes or carry out renovations.
Also known as a building loan, a construction home loan works differently than a standard home loan. Instead of providing the full amount of the eventual value of the property or the cost of the overall build, construction home loans make progressive payments. This means that the borrower can draw down funds from the lender as the construction moves through phases.
Lenders usually charge interest-only payments for construction loans. This is the repayment arrangement for 12 months in most cases or until the construction ends, whichever comes first.
When the interest-only repayment period ends, the loan will revert to a principal and interest payment arrangement under what is considered the “end loan”, which usually works as a typical home loan.