Building your dream home in Frankston requires careful financial planning, particularly when it comes to understanding construction loan fees. Unlike traditional home loans, construction loans involve unique fee structures that align with the building process. As an experienced renovation Mortgage Broker, Abundance Home Loans helps clients access Construction Loan options from banks and lenders across Australia while providing clarity on all associated costs.
Understanding Construction Loan Fee Structure
Construction loans differ significantly from standard mortgages in their fee arrangements. These loans only charge interest on the amount drawn down, making them cost-effective during the building phase. The interest rate applies only to funds released for completed work, meaning you're not paying interest on the full loan amount from day one.
The Progressive Drawing Fee represents one of the most important costs to consider. This fee applies each time you request funds during various stages of the project. Lenders typically charge between $300 to $500 per drawdown, though this varies between institutions. Understanding this fee structure helps you budget effectively for your new build or major home renovations.
Key Fee Categories
Construction loan fees generally fall into several categories:
- Establishment Fees: Initial setup costs for your construction loan
- Progressive Drawing Fees: Charged for each payment release during construction
- Valuation Fees: Required for 'as if complete' valuations and progress assessments
- Legal and Documentation Fees: Covering council plans, permits, and contract reviews
- Account Keeping Fees: Monthly or annual fees for loan maintenance
Lenders require detailed documentation including development applications, council regulations compliance, and fixed price contracts before approving any drawdowns. Each milestone triggers additional fees, making it crucial to factor these costs into your overall budget.
Progressive Payment Schedule and Timing
The Progressive Payment Schedule outlines when funds become available during construction milestones. Most lenders require you to commence building within a set period from the Disclosure Date, typically 12 months. This timeline affects your fee structure and interest calculations.
Progress payments align with specific construction phases:
• Foundation and slab completion
• Frame and roof installation
• Electrical and plumbing rough-in
• Internal fit-out and fixtures
• Final inspection and completion
Each stage requires inspections and approvals before fund release, with associated Progressive Drawing Fees applying. Your registered builder coordinates with lenders to ensure proper documentation for each drawdown request.
Managing Additional Costs
Out of Contract Items not included in your fixed price contracts generate additional payments and potential extra fees. These might include upgraded fixtures, landscaping, or modifications to council plans during construction. Your loan amount must accommodate these variations, which may trigger additional valuation fees.
Interest-only repayment options during construction help manage cash flow, though you'll still pay Progressive Drawing Fees and other associated costs. This approach reduces monthly commitments while your home takes shape, particularly valuable when coordinating payments to plumbers, electricians, and other sub-contractors.
Planning Your Construction Finance
Whether you're looking at house & land packages, buying off the plan, or planning to demolish existing property for a new build, fee planning remains crucial. Council restrictions and development applications add complexity and potential costs to your project timeline.
Consider these factors when developing your financial plan:
• Suitable land acquisition costs and associated fees
• Council regulations compliance and permit fees
• Professional service fees for inspections and approvals
• Contingency funds for unexpected costs or delays
• Home improvement loan options for renovation projects
The streamlined application process through experienced mortgage brokers helps identify the most appropriate loan structure for your ideal location and price range. Professional guidance ensures you understand all fee implications before committing to your construction project.
Building in Frankston offers excellent opportunities, but success depends on thorough financial preparation. Understanding construction loan fees enables informed decision-making throughout your building journey. From initial planning through final completion, knowing your financial commitments helps ensure your project stays on budget and on schedule.
Call one of our team or book an appointment at a time that works for you to discuss your construction loan options and fee structure.
