Understanding the construction loan feature

The construction home loan account feature allows borrowers to draw down their home loan facility in stages to fund their renovation or new home build. The approved facility limit is drawn down in stages as agreed construction milestones are met. This is sometimes referred to as progress payments.

Within a Basic or Offset Home Loan Facility, your customer can have multiple home loan accounts (up to six can be established during the application phase), however, the construction loan feature is only available on one of the home loan accounts within the feature.

The account with the construction loan feature:

• will manage the progressive drawdowns for the construction stages
• must have a variable interest rate, and
• will have interest only repayments for two years.
   

Construction loan accounts are available on both the Basic Home Loan Facility and the Offset Home Loan Facility. The home loan accounts can be for either owner occupied or investment purposes, and are available for individual and company/trust borrowers.

A construction loan account feature may be appropriate for your customer if they’re considering:

• building a new home, including knockdown and rebuild, or building on vacant land
• completing renovations on an existing residential property, where we are reliant on the ‘as-if completed’ value of the property
• building a construction of up to 2 residential dwellings (e.g. duplex).

Interest is charged on the outstanding loan balance. If your customer’s construction loan account has only had one progress payment, they’ll only be charged interest on the outstanding balance at that point in time, not on the approved limit once all progress payments are made.

Like other home loan accounts, up to 10 offset accounts can be linked to a construction home loan account (but only four at application stage). For company or trust borrowers, only four offset accounts can be linked at any time and must be created at the application stage.

During the construction phase, before all progress payments have been completed, the offset account balance will only offset interest up to the current loan balance of the account.

Construction loan accounts also have a redraw feature, enabling access to additional payments your customer has made into their loan account.

During the construction phase, while progress payments are being made, the redraw doesn’t enable a customer to access the additional home loan limit that is yet to be drawn down. It only provides access to the additional payments they’ve made.