Understanding Construction Loans for Extensions
Planning a home extension in Alkimos? You're not alone. Many residents in this growing suburb are choosing to extend their existing homes rather than move. A construction loan could be the perfect financing solution for your extension project.
Construction loans work differently from traditional home loans. Instead of receiving the full loan amount upfront, you access funds through progressive drawdown as your extension reaches various stages of the project. This means you'll only charge interest on the amount drawn down, making it a cost-effective option for major home renovations.
How Progressive Payments Work
When you're applying for a loan for your extension, lenders will establish a Progressive Payment Schedule based on construction milestones. Here's how it typically works:
• Initial payment upon signing with your registered builder
• Slab or foundation stage payment
• Frame stage payment
• Lock-up stage payment
• Final completion payment
Each payment is released when your builder reaches specific milestones, with inspections confirming work completion. You'll pay sub-contractors and tradespeople like plumbers and electricians through this streamlined application process.
Getting Started with Your Extension Loan
Before you commence building within a set period from the Disclosure Date, you'll need to make a plan. This includes:
- Obtaining council plans and permits
- Securing quotes from licensed contractors
- Getting an 'as if complete' valuation
- Finalising fixed price contracts
Many lenders across Australia require you to have all permits and approvals in place before loan approval. Council restrictions and council regulations in Alkimos may impact your extension plans, so it's crucial to understand these requirements early.
Interest Rates and Repayment Options
During construction, you'll typically have access to interest-only repayment options. This means you'll only pay interest on instalments already drawn down, not the full loan amount. The interest rate may be slightly higher than standard home loans due to the progressive nature of the funding.
Once construction is complete, your loan usually converts to a standard home loan with principal and interest repayments. Some lenders may charge a Progressive Drawing Fee for each payment release, so factor this into your budget.
What's Included and What's Not
Your construction loan will cover costs outlined in your building contract, but be aware of Out of Contract Items not included. These might be:
• Landscaping beyond basic requirements
• Premium fixtures and fittings
• Additional electrical or plumbing work
• Site preparation costs
Work with your builder to clearly define what's included to avoid unexpected additional payments during construction.
Choosing the Right Location and Loan Amount
Alkimos offers an ideal location for families wanting to extend their homes. When determining your loan amount, consider:
• Current property value
• Proposed extension costs
• Your borrowing capacity
• Future property value after completion
Some residents also explore options like buying off the plan or house & land packages if extending isn't suitable for their current property.
Working with the Right Professionals
Successful extension projects require the right team. You'll need:
• A registered builder with local experience
• Licensed plumbers and electricians
• A renovation Mortgage Broker who understands construction loans
• Council-approved plans and permits
At G&T Finance, we can access Construction Loan options from banks and lenders across Australia, helping you find the right fit for your Alkimos extension project.
Alternative Financing Options
Depending on your extension's scope, you might consider a home improvement loan instead of a construction loan. For smaller renovations, personal loans might be suitable. However, for major extensions, construction loans typically offer better rates and terms.
If you're considering other property investments alongside your extension, our team can also discuss investment loans or refinancing your existing mortgage to fund the project.
Extending your Alkimos home can add significant value while letting you stay in the community you love. With the right construction loan and professional support, your extension project can proceed smoothly from planning to completion.
Ready to explore construction loan options for your extension? Call one of our team or book an appointment at a time that works for you.
