Settlement on a construction loan happens in stages as your build progresses, not as a single payment on a fixed date.
When you're building in Alkimos rather than buying an existing home, the money doesn't move in one transaction. Instead, your lender releases funds progressively as each stage of construction is completed and inspected. You'll typically settle on the land first, then draw down portions of the loan amount as the slab goes down, the frame goes up, the lock-up is reached, and so on through to practical completion. Each drawdown requires a progress inspection by the lender's valuer before funds are released to your registered builder.
This staged approach protects both you and the lender. You only pay interest on the amount drawn down at any point, and the builder receives payment as work is verified. The timing between drawdowns can vary from a few weeks to several months depending on build speed, weather, and how quickly inspections are arranged.
How the Initial Land Settlement Works
You settle on the land parcel first, usually through a standard property settlement process.
If you're buying a house and land package in one of the northern Alkimos estates, the land component settles before construction begins. This means you'll need your deposit and settlement costs ready for that land settlement date, just as you would when buying an existing home. The construction portion of your loan remains undrawn at this point. Some lenders will allow you to purchase the land and arrange construction finance separately, but most prefer to approve both components together as a single land and construction package to ensure the total borrowing sits within your capacity.
Once you own the land, you'll typically need to commence building within a set period from the date the loan was approved, usually six to twelve months. This timeframe is written into your loan contract. If you delay beyond that window, the lender may require a fresh application or revaluation.
Understanding the Progress Payment Schedule
Your builder provides a fixed price building contract that breaks the project into stages, each tied to a percentage of the total build cost.
A typical progress payment schedule might include five or six stages: base stage after the slab is poured, frame stage once the structure is up, lock-up when the roof and external walls are complete, fixing stage when internal fit-out is done, and practical completion when you receive the keys. Each stage is tied to a specific portion of the contract price, often around 15% to 20% per drawdown. Your lender will outline their own requirements for how these align with the builder's schedule.
In practice, your builder invoices the lender directly once a stage is reached. The lender arranges a progress inspection, usually within a few business days. If the inspector confirms the stage is complete and the work meets the contracted standard, the lender releases that portion of funds to the builder. You don't handle the payment yourself.
What You Pay Between Drawdowns
You only pay interest on the portion of the loan that's been drawn down, not the full approved amount.
Consider a scenario where you've settled on land and drawn down the base stage, meaning you owe funds on the land plus the first construction drawdown. Your repayments during this period are typically interest-only and calculated only on that drawn amount. As each new stage is completed and funds are released, your interest charges increase to reflect the higher balance. This continues until the final drawdown at practical completion, at which point the full loan amount is drawn and you convert to principal and interest repayments if that's how your loan is structured.
Most lenders also charge a Progressive Drawing Fee each time funds are released, usually between $300 and $500 per drawdown. This covers the cost of the progress inspection and administration. Some lenders cap the number of drawdowns, others allow flexibility if your builder requests additional stages. Factor these fees into your upfront costs when budgeting for the build.
When Delays Push Out Your Build Timeline
Delays during construction don't change your loan structure, but they do extend the period you're paying interest without living in the property.
Alkimos has seen strong building activity over recent years, and material shortages or wet weather can push timelines out by months. If your frame stage is delayed by eight weeks, you'll continue paying interest-only on the drawn amount for those extra weeks without progressing to the next stage. The longer the build takes, the more interest you pay overall, and you're likely still paying rent or a mortgage on your current home during that time. This is one reason having a buffer in your budget matters when financing new home construction.
Some buyers also underestimate the gap between practical completion and final settlement. Practical completion is when the builder hands over the keys and you can move in, but final paperwork like title registration and council approval can take several more weeks. Your loan remains in the construction phase until all documentation is finalised.
How the Conversion to Permanent Loan Happens
Once construction is complete and all funds are drawn, your loan converts to a standard home loan without requiring a new application.
This is called a construction to permanent loan. The interest rate during construction is often slightly higher than the ongoing rate, but once you convert, you move to the standard variable or fixed rate that was agreed when the loan was approved. Your repayments shift from interest-only to principal and interest unless you've specifically structured it otherwise. The lender will send you a new repayment schedule reflecting the full loan amount and the remaining loan term.
If you've been making additional payments into an offset or redraw during construction, those funds remain available once you convert. Some buyers use this period to build a buffer that reduces interest from day one of the permanent loan phase.
Why Construction Loan Settlement Takes Longer to Organise
You need signed building contracts, council plans, and builder insurance in place before the first drawdown can occur.
Unlike a standard home purchase where settlement is largely handled by conveyancers, construction loans require more documentation upfront. Your lender needs to sight the fixed price building contract, verify that your registered builder holds the required insurance, and confirm that council approval has been granted for the build. If any of these documents are missing or incomplete, the land settlement can proceed but construction drawdowns will be delayed until everything is in order.
This is where working with a broker becomes useful. We regularly see buyers assume that loan approval means everything is ready to go, only to find that their builder hasn't finalised contracts or that a development application is still pending. Getting all parties aligned before the land settlement date keeps the process moving.
What Happens If You Want to Make Changes Mid-Build
Changes to the build that increase the contract price may require additional loan approval and a revaluation.
If you decide to upgrade fixtures or extend the floor plan after construction has started, your builder will issue a contract variation. If this pushes the total build cost beyond your approved loan amount, you'll need to apply for a top-up or cover the difference from your own funds. The lender may also require a fresh valuation to confirm that the updated property value supports the higher borrowing. This can delay the next drawdown while the paperwork is processed.
Smaller variations that sit within the original contract price usually don't require lender involvement, but your builder should confirm how variations are handled under your fixed price building contract before you commit to changes.
If you're building in Alkimos and want to understand how the drawdown process will work for your specific build, call one of our team or book an appointment at a time that works for you. We'll walk through the timeline with you and make sure all the documentation is in place before your land settlement date so nothing holds up your construction drawdowns once the build begins.
Frequently Asked Questions
How does settlement work on a construction loan?
Settlement happens in stages rather than as a single payment. You settle on the land first, then the lender releases funds progressively as each stage of construction is completed and inspected. You only pay interest on the amount drawn down at each stage.
What do I need before the first construction drawdown?
You need a signed fixed price building contract, council approval for the build, and confirmation that your registered builder holds the required insurance. If any of these are missing, your construction drawdowns will be delayed even if the land settlement has occurred.
What happens to my loan once the build is finished?
Your loan converts to a standard home loan without requiring a new application. You move from interest-only repayments on the drawn amount to principal and interest repayments on the full loan amount at the standard rate that was agreed when your loan was approved.
Do I pay interest on the full loan amount during construction?
No, you only pay interest on the portion of the loan that has been drawn down. As each construction stage is completed and funds are released to your builder, your interest charges increase to reflect the higher balance.
What fees apply during construction drawdowns?
Most lenders charge a Progressive Drawing Fee each time funds are released, usually between $300 and $500 per drawdown. This covers the cost of the progress inspection and administration. The number of drawdowns depends on your builder's payment schedule.
