I have a property and need to build on it a house in the future, if i needto borrow money from the bank when the repayment has to start, is it after finishing the construction an what normaly happen do they give the money to me or I gove them the invoice?
Hi Sam. Normally when building a house the builder will require progressive payments as various stages of construction are completed.
Your lender will make these payments on your behalf upon presentation of the invoice which you are required to sign.
The lender will require you to make payment of interest during this time based on the amount that has been paid out to the builder.
For example, if the first payment to your builder was $50,000 you will pay interest on that amount.
In the following month the bank makes the second payment of say $70,000. Your loan balance is now $120,000, and you will pay interest on that balance.
Your loan balance and the interest you will pay grows as your house is built.
Normal home loan repayments of interest and principal commence in the month following completion of the home.
FYI. You are not compelled to completely repay any loan you may currently have on the land before you start building, subject only on your ability to afford the combined repayments.
the bank will most likely pay the builder in stages. There are between 5 and 9 stages on a building project. At each stage you will begin making monthly, interst only repayments but only on the total amount paid to the builder. Eg. you get a loan for $400,000. The first stage is completed and the bank pays the builder $60,000. You then make an interest only repayment on $60,000 next month- etc.
Generally construction loans are used for building on land.
Construction loans are paid as progress payments to the builder.
There would be two parts of the loan one for the land which will settle first then the second part is for the construction which are drawn throughout the projects completion with drawdowns at certain milestones of the construction.
Drawdowns are paid to the builder and your loan increases after every drawdown.