Construction Loan Management: Mornington Build Guide

A construction loan is paid out in stages as your build progresses, so managing each stage well keeps your costs and your builder on schedule.

If you are planning to build your dream home in Mornington, the loan will behave differently from a standard home loan. Money goes to your builder in instalments, your interest grows as each payment is released, and your lender will want proof of the work along the way. This guide walks you through how that works in Victoria, so you can plan your cash flow before the first sod is turned.

How Does a Construction Loan Drawdown Work?

A construction loan releases money to your builder in stages once each stage of the build is finished, rather than as one lump sum. This is called a progressive drawdown, and it follows the builder's progress payment schedule.

Your lender sets the number of drawdowns, the inspection requirements and any fees, so these differ between lenders. Our construction loans service is designed to line these terms up with your building contract before you sign, because changing them later is harder.

Why Interest Is Only Charged on the Amount Drawn

On most construction loans, you only pay interest on the amount drawn down, not on the full approved loan amount. That means your repayments start small and rise with each stage.

As an illustrative example, using a rate of 6.75% p.a., a drawn balance of $75,000 costs about $5,062 a year in interest, or roughly $422 a month. Once the balance reaches $325,000, interest at the same rate is about $21,937 a year, or roughly $1,828 a month. Your repayments will go up as the build progresses, and a rate change would alter these figures. Whether you pay interest-only during the build depends on the lender, so confirm this early.

Victorian Progress Payments: What Your Builder Can Ask For

In Victoria, under the current rules for contracts before 31 March 2027, a builder cannot ask for more than 5% as a deposit on a contract of $20,000 or more. After that, payments are made as each stage is completed.

For a contract to build all stages, the usual schedule is 10% at base, 15% at frame, 35% at lock-up and 25% at fixing. Consumer Affairs Victoria advises getting legal advice before agreeing to a different schedule, and notes that insurance may not cover work paid for before it is finished. The Domestic Building Contracts Amendment Act 2025 (Vic) has been deferred to commence on 31 March 2027, and the regulations that will set the details are not yet final. If your contract is being signed around then, ask your solicitor which rules apply.

A Worked Example: A Fixed Price Building Contract in Mornington

Consider a couple building their first home on land they already own, with a fixed price building contract of $500,000 with a registered builder. The contract follows the all-stages schedule above, with a 5% deposit.

The deposit is $25,000. The base stage is 10%, or $50,000, taking the drawn total to $75,000. Frame is 15%, or $75,000, taking the total to $150,000. Lock-up is 35%, or $175,000, bringing the total to $325,000. At the illustrative 6.75% p.a., their monthly interest rises from about $422 after base to about $1,828 after lock-up, as shown above.

Because they know the draw schedule in advance, they set aside a buffer for the higher repayments and for their rent during the build. When lock-up is reached, the higher interest is already in their budget. The outcome is that a bigger repayment is an expected step in the plan rather than a surprise.

What Happens at Each Progress Inspection?

Before releasing each payment, the lender usually arranges a progress inspection to confirm the stage is complete. Your builder then submits the claim, and the lender pays once satisfied.

This protects you, because payments should match work actually done. In NSW, Building Commission guidance gives $250 to $500 as an indicative cost for an independent inspection, which shows these checks can carry a cost. Ask your lender whether it charges for inspections or per drawdown, as a fee can apply on each release. If a claim arrives before the work is finished, speak to your builder and your lender before anything is paid.

Do You Need to Prove You Can Afford the Repayments?

Yes. Even though construction finance for new dwellings is exempt from APRA's debt-to-income limit on lenders, the lender still has to assess whether you can meet repayments.

APRA-regulated lenders (ADIs such as banks, credit unions and building societies) must test your ability to repay at a rate at least 3 percentage points above the loan rate. APRA confirmed in May 2026 that this buffer stays in place. All lenders must also assess whether you can afford repayments under responsible lending laws. Use our borrowing capacity resource to get a sense of where you stand before you commit to a block or a design. It is a guide only, and your final result depends on your income, debts and the lender.

Land and Construction Package or Separate Contracts?

A land and construction package ties the land and the build together, while separate contracts let you buy the land first and choose your own builder. Both can be financed, but the paperwork and drawdowns differ.

With separate contracts, the land settles first and the build is then funded in stages. If you are buying your first home, the first home buyers page explains the support that may apply, and eligibility rules differ for each grant and scheme. Housing Australia's 5% Deposit Scheme lists both house and land packages and vacant land with a separate building contract as supported property types, subject to price caps and eligibility.

Choosing a Lender That Suits a Build

The right lender for a build is one whose drawdown process, inspection approach and repayment options suit your builder and your budget. Rates matter, but so does how quickly a lender releases funds, because a delayed payment can hold up your builder.

We can compare construction loan options from the lenders on our panel, and you can learn more about the broker who will guide you on Mandy Donoghue's page. The trade-off is that a lender with a low rate may have stricter inspection steps or fees per drawdown, so we compare the whole structure rather than just the headline rate.

If you are building in Mornington and want your loan set up to match your contract, call one of our team or book an appointment at a time that works for you. You can also read about our Mornington broker service before you get in touch.

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