Estimate progress payment drawdowns, interest during construction, and your repayment once your home build reaches practical completion.
📖 16 min read · ⏱️ Calculator time: ~45 seconds
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Calculations are estimates only. Actual progress payment schedules, interest charges, approval criteria and lending policies vary between lenders and construction contracts.
A construction loan is a home loan structured specifically for building a new home, knocking down and rebuilding, or undertaking a major renovation. Unlike a standard mortgage, the funds aren't released as a single lump sum — instead, they're paid out progressively as construction reaches agreed milestones, and you pay interest only on the amount drawn down so far, not the full approved loan amount.
Your lender approves a total loan amount based on your building contract and (if applicable) land purchase. As your builder completes each stage — slab, frame, lock-up and so on — the lender releases (draws down) that stage's portion of the loan directly to the builder. You pay interest only on the cumulative amount drawn so far, which starts low and rises as each stage is paid out. Once the build reaches Practical Completion, the loan converts to a standard Principal & Interest mortgage over your remaining term.
Progress payments (also called stage payments) are the scheduled portions of your building contract paid to the builder as each stage is completed and verified — typically by an independent inspection or your lender's valuer. The percentages vary by state, builder and contract, which is why the calculator above lets you edit each stage's percentage rather than using a single fixed split.
This is the feature that catches many first-time builders off guard: your interest-only repayment isn't fixed during construction — it grows every time a new stage is drawn down, since interest is calculated on the cumulative drawn balance. The Cash-Flow Summary in the calculator above shows exactly how your repayment rises from the first stage through to practical completion, so there are no surprises along the way.
Building with a registered, licensed builder is the standard path most lenders are comfortable financing, typically under a fixed-price building contract with standard progress payment stages. Owner-builder projects (where you manage construction yourself) are financed by fewer lenders, often require additional documentation, higher deposits, and more frequent inspections, reflecting the higher perceived risk. Select your builder type in the calculator above for relevant context.
A standard home loan releases the full loan amount at settlement and charges interest on that full amount from day one. A construction loan releases funds progressively and charges interest only on what's been drawn — generally resulting in lower repayments during the build than an equivalent standard loan would, but converting to full Principal & Interest once construction is complete, at which point repayments rise to reflect the full loan balance.
| Stage | Typical % of contract | What it covers |
|---|---|---|
| Deposit | ~5% | Contract signing, initial planning |
| Base / Slab | ~15% | Site works, foundations, slab |
| Frame | ~20% | Structural framing complete |
| Lock-up | ~25% | External walls, roof, windows and doors installed |
| Fixing | ~20% | Internal fit-out — cabinetry, doors, tiling |
| Practical Completion | ~15% | Final inspection, handover |
These percentages are indicative and vary by state, builder and contract — edit them directly in the calculator above to match your actual building contract.
Delays are common in construction — weather, material shortages, and approval hold-ups can all extend your build beyond the original schedule. Every extra month means an extra month of interest-only repayments on a partially-drawn loan, which the Construction Delay Impact panel in the calculator above quantifies directly, separate from any additional holding costs (like ongoing rent) a delay might cause.
Construction costs can exceed the original contract price due to variations, site conditions, or material price changes. A cost overrun increases both your loan amount and the interest charged during construction — the Cost Overrun Impact panel above models this directly, which is why many lenders require a contingency buffer (commonly 5-10% of the contract price) to be available before approving a construction loan.
| Scenario | Key detail | What to notice |
|---|---|---|
| First-home build | $500k construction + $300k land | Interest-only repayment starts low, rises with each stage |
| Investment property build | Same mechanics, investor loan type | No first-home-buyer waivers apply |
| Owner-builder project | Managing the build yourself | Fewer lenders, more documentation required |
| Registered builder project | Standard fixed-price contract | Most common, widest lender choice |
| Knockdown rebuild | No separate land purchase | Set land value to $0 in the calculator above |
| Construction delay | +3 months | See Construction Delay Impact panel |
| Cost overrun | +10% construction cost | See Cost Overrun Impact panel |
| Low deposit | Higher LVR | LMI may apply — see LVR panel above |
Enter each of these scenarios into the calculator above to see exact figures for your own build.
| Term | Meaning |
|---|---|
| Drawdown | A payment released from the loan to the builder as a construction stage is completed. |
| Progress payment | A scheduled portion of the building contract paid at each construction stage. |
| Practical completion | The point at which construction is finished and the home is ready for handover. |
| Interest-only period | The construction phase, during which only interest on the drawn balance is repaid. |
| Owner builder | A borrower who manages construction themselves rather than engaging a registered builder. |
| Contingency | A buffer amount set aside for cost overruns during construction. |
Construction loans work differently to standard mortgages — progressive drawdowns, rising interest-only repayments during the build, and a step up to full Principal & Interest at completion. Use the calculator above to see your own progress payment schedule, stress-test delays and cost overruns, and understand exactly how your repayments will change at every stage of your build. Pair it with our LVR, LMI and Home Deposit calculators for the complete financial picture.
What is a construction loan?
A construction loan is a home loan structured for building a new home or major renovation, where funds are released progressively as construction reaches agreed stages, and interest is charged only on the amount drawn down so far.
How do construction loan repayments work?
During construction, you pay interest-only on the cumulative drawn balance, which rises with each stage. After Practical Completion, the loan converts to standard Principal & Interest over your remaining term.
What are progress payments?
Progress payments (or stage payments) are the scheduled portions of your building contract paid to the builder as each construction stage — slab, frame, lock-up and so on — is completed and verified.
Why does my repayment increase during construction?
Because interest is calculated on the cumulative amount drawn down so far — as each stage is paid out, your drawn balance grows, and so does your interest-only repayment.
What happens when construction is complete?
Your loan converts from interest-only to standard Principal & Interest, recalculated over your remaining loan term based on the final drawn balance — this typically produces a noticeably higher repayment than the interest-only period.
How many stages does a construction loan have?
Commonly six: deposit, base/slab, frame, lock-up, fixing, and practical completion — though exact stages and percentages vary by builder, contract and state.
Can I edit the progress payment percentages?
Yes — the calculator above lets you edit each stage's percentage directly, since actual building contracts vary from the typical breakdown.
Do construction loan stages have to total 100%?
Yes — the calculator validates this and will show an error if your entered percentages don't sum to exactly 100%, since they represent the full building contract.
What is interest-only during construction?
It means you only repay the interest charged on the drawn balance during the build — no principal repayment is required until the loan converts to Principal & Interest at completion.
Can I make extra repayments during construction?
Many lenders allow this — extra repayments during construction reduce your drawn balance, lowering both your interest cost and the eventual Principal & Interest repayment.
What is the difference between a construction loan and a standard home loan?
A standard home loan releases the full amount at settlement with interest charged on the full balance from day one. A construction loan releases funds progressively and charges interest only on the drawn amount, converting to standard repayments once building is complete.
Can I use a construction loan for land and building together?
Yes — many construction loans combine a land purchase with the building contract, with the land portion typically drawn at settlement and construction stages released as the build progresses.
What is a knockdown rebuild?
A knockdown rebuild involves demolishing an existing home and building a new one on the same land — since you already own the land, set land value to $0 in the calculator above.
What's the difference between an owner builder and a registered builder?
A registered builder is a licensed professional managing your build under a fixed-price contract — the standard path most lenders finance. An owner builder manages the project themselves, which fewer lenders finance and typically requires more documentation.
Is it harder to get a construction loan as an owner builder?
Generally yes — fewer lenders offer owner-builder construction loans, and those that do often require higher deposits, additional insurance, and more frequent inspections to manage the higher perceived risk.
How much deposit do I need for a construction loan?
This varies by lender, but commonly 10-20% of the total project cost (land plus construction) — see our LVR and LMI calculators for how your deposit affects your borrowing position.
What happens if construction is delayed?
Your interest-only period extends, meaning more months of interest charged on the drawn balance — the Construction Delay Impact panel in the calculator above quantifies this directly.
What happens if construction costs more than expected?
A cost overrun increases both your required loan amount and the interest charged during construction — many lenders require a contingency buffer to be available before approving the loan, in case this happens.
Do I need building insurance during construction?
Yes — lenders typically require construction (works) insurance covering the property during the build, in addition to standard home and contents insurance once complete. Confirm exact requirements with your lender and insurer.
Can I fix my interest rate on a construction loan?
Some lenders offer fixed rates on construction loans, though variable rates are more common during the drawdown period — check directly with lenders, as policies and products vary.
How long does a typical home construction take in Australia?
This varies significantly by project size, builder, and market conditions, but 6-12 months is common for a standard new home build — enter your own expected timeframe in the calculator above.
Does LVR apply to construction loans?
Yes — LVR is calculated the same way, using your total loan amount against your total project cost (land plus construction). See the LVR panel in the calculator above.
Can LMI apply to a construction loan?
Yes, if your LVR exceeds 80% — the same LMI principles apply as for a standard home loan. See our dedicated LMI Calculator for a fuller breakdown.
What documents do lenders require for a construction loan?
Typically a fixed-price building contract, council-approved plans, builder's registration and insurance details, and (if applicable) land contract or title — confirm the exact requirements with your specific lender.
Does the builder get paid directly by the lender?
Yes — progress payments are generally released directly to the builder as each stage is verified complete, rather than passing through the borrower's own account.
Who verifies that a construction stage is complete?
Usually an independent building inspector or your lender's own valuer confirms each stage before the corresponding progress payment is released.
Can I switch lenders during construction?
This is possible but can be complex mid-build — most borrowers stay with their original construction lender through to Practical Completion, then consider refinancing once the loan converts to standard Principal & Interest.
Does a construction loan affect my borrowing capacity for another property?
Yes — lenders typically assess your construction loan's full approved amount (not just the drawn portion) against your income and expenses when considering additional borrowing.
What is a fixed-price building contract?
A contract where the builder agrees to a set price for the agreed scope of work, providing more cost certainty than a cost-plus contract, though variations for changes or unforeseen site conditions can still increase the final price.
Can I renovate using a construction loan?
Yes, for major renovations that significantly increase the property's value — smaller renovations are often better suited to a standard home loan top-up or a personal loan, depending on the scope and cost.
What is a valuation during construction?
Lenders typically arrange periodic valuations or inspections during the build to confirm construction is progressing as expected before releasing each stage payment.
Does this calculator account for GST on construction costs?
Enter your total construction cost inclusive of GST if that's how your building contract is quoted — the calculator doesn't separately add or remove GST, so use whatever figure matches your actual contract price.
How accurate is this construction loan calculator?
It models the standard Australian progressive-drawdown mechanic accurately and has been tested against manual calculations, but actual progress payment schedules, timing and lender policies vary — confirm exact figures with your lender and builder.
Can I get a construction loan for an investment property build?
Yes — the mechanics work the same way as for an owner-occupier build; set Loan type to reflect your situation for relevant guidance elsewhere on this site.
What is retention in a building contract?
Retention is a small portion of each progress payment (or the final payment) withheld until defects are rectified after practical completion — check whether your specific contract includes a retention clause.
Does a construction loan have different fees to a standard home loan?
Some lenders charge additional fees for construction loans (such as progress inspection fees for each stage) beyond standard loan establishment fees — confirm the full fee schedule with your lender.
Can I use my home deposit calculator alongside this one?
Yes — use our Home Deposit Calculator to plan your savings toward the deposit, then this Construction Loan Calculator to model the build itself once you're ready to proceed.
What if my builder goes into liquidation during construction?
This is a genuine risk in the building industry — most states require builders to hold home warranty insurance covering incomplete or defective work if this occurs. Confirm your builder's insurance and your state's specific protections before signing a contract.
Does the calculator show a month-by-month schedule?
Yes — use the CSV export for the full month-by-month drawn balance and interest figures across the construction period, or view the Loan Balance chart above for a visual summary.
Should I fix or leave my rate variable during construction?
This depends on your risk tolerance and rate outlook — some borrowers prefer the certainty of a fixed rate during the build, while others keep it variable for flexibility. This is a personal decision; consider discussing it with a mortgage broker.
Can I combine a construction loan with an offset account?
Some lenders offer this, though offset functionality during the drawdown phase varies — check directly with your lender, as not all construction loan products include offset accounts.
What is practical completion?
The point at which construction is finished to the standard required for occupation, subject to a final inspection — this triggers the final progress payment and the conversion to standard Principal & Interest repayments.
Does building in a regional area affect my construction loan?
Lending policies can differ by location and property type — some lenders apply additional conditions or restrictions for regional or rural construction, so confirm directly with lenders operating in your area.
Can first home buyers use grants with a construction loan?
Yes — First Home Owner Grants in most states specifically apply to new builds (including knockdown rebuilds), often more generously than for established homes. See our Home Deposit Calculator for scheme guidance.
Does a longer construction period always mean more total interest?
Generally yes, since a longer build means more months of interest-only repayments on a growing drawn balance — though the exact effect also depends on how quickly stages are drawn down within that period.