Best Construction Loans & Rates in Australia
- See the top investment home loan rates, starting from 5.48% p.a. (6.24% p.a. comparison rate^).
In our construction home loans guide:
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Best variable rate construction loans compared
The table below shows a selection of the best variable construction loan rates currently available for owner-occupiers. These rates are based on principal and interest repayments and the table is sorted by the lowest interest rate, then the lowest comparison rate.
Regional Australia Bank - Introductory Basic Home Loan Variable | |
|---|---|
| Variable interest rate | 5.74% p.a. variable (3-year intro rate) |
| Comparison rate^ | 6.23% p.a. |
| Features |
|
| Maximum loan-to-value ratio (LVR) | 80% |
Arab Bank Australia - The Basics Home Loan Variable | |
| Variable interest rate | 5.75% p.a. variable (discount of 3.54% off standard variable rate) |
| Comparison rate^ | 5.88% p.a. |
| Features |
|
| Maximum loan-to-value ratio (LVR) | 60% |
G&C Mutual Bank - Essential Worker Owner Occupied | |
| Variable interest rate | 5.80% p.a. variable |
| Comparison rate^ | 5.83% |
| Features |
|
| Maximum loan-to-value ratio (LVR) | 95% |
Reduce Home Loans - Eco Home Loan Variable | |
| Variable interest rate | 5.84% p.a. variable |
| Comparison rate^ | 5.89% p.a. |
| Features |
|
| Maximum loan-to-value ratio (LVR) | 80% |
Summerland Bank - Eco Home Loan Variable | |
| Variable interest rate | 5.84% p.a. variable (special offer) |
| Comparison rate^ | 5.89% p.a. |
| Features |
|
| Maximum loan-to-value ratio (LVR) | 60% |
Pacific Mortgage Group - Owner Occupied Variable | |
| Variable interest rate | 5.89% p.a. variable |
| Comparison rate^ | 5.89% p.a. |
| Features |
|
| Maximum loan-to-value ratio (LVR) | 80-90% |
Illawarra Credit Union - Bare Essentials Home Loan | |
| Variable interest rate | 5.89% p.a. variable (special offer) |
| Comparison rate^ | 5.94% p.a. |
| Features |
|
| Maximum loan-to-value ratio (LVR) | 95% |
G&C Mutual Bank - First Home Buyer Loan (Special) | |
| Variable interest rate | 5.90% p.a. variable |
| Comparison rate^ | 5.93% p.a. |
| Features |
|
| Maximum loan-to-value ratio (LVR) | 95% |
Arab Bank Australia - Essentials Home Loan Variable | |
| Variable interest rate | 5.90% p.a. variable (special offer) |
| Comparison rate^ | 5.94% p.a. |
| Features |
|
| Maximum loan-to-value ratio (LVR) | 60% |
The Mac Credit Union - Owner Occupied Variable | |
| Variable interest rate | 5.92% p.a. variable (2-year intro rate) |
| Comparison rate^ | 7.57% p.a. |
| Features |
|
| Maximum loan-to-value ratio (LVR) | 95% |
Greater Bank - Great Rate Home Loan Variable | |
| Variable interest rate | 5.94% p.a. variable (special offer) |
| Comparison rate^ | 5.95% p.a. |
| Features |
|
| Maximum loan-to-value ratio (LVR) | 80% |
Hume Bank - liteBlue Owner Occupied Variable | |
| Variable interest rate | 5.94% p.a. variable |
| Comparison rate^ | 5.95% p.a. |
| Features |
|
| Maximum loan-to-value ratio (LVR) | 60% |
Community First Bank - Basic Home Loan Variable | |
| Variable interest rate | 5.94% p.a. variable |
| Comparison rate^ | 5.99% p.a. |
| Features |
|
| Maximum loan-to-value ratio (LVR) | 95% |
The Capricornian - Offset Owner Occupied | |
| Variable interest rate | 5.99% p.a. variable |
| Comparison rate^ | 5.99% p.a. |
| Features |
|
| Maximum loan-to-value ratio (LVR) | 95% |
Northern Inland CU - Dream Home Loan Variable | |
| Variable interest rate | 5.99% p.a. variable (special offer) |
| Comparison rate^ | 6.14% p.a. |
| Features |
|
| Maximum loan-to-value ratio (LVR) | 80% |
| Variable interest rate | Comparison rate^ | Features | Maximum loan-to-value ratio (LVR) | |
|---|---|---|---|---|
Regional Australia Bank - Introductory Basic Home Loan Variable | 5.74% p.a. variable (3-year intro rate) | 6.23% p.a. |
| 80% |
Arab Bank Australia - The Basics Home Loan Variable | 5.75% p.a. variable (discount of 3.54% off standard variable rate) | 5.88% p.a. |
| 60% |
G&C Mutual Bank - Essential Worker Owner Occupied | 5.80% p.a. variable | 5.83% |
| 95% |
Reduce Home Loans - Eco Home Loan Variable | 5.84% p.a. variable | 5.89% p.a. |
| 80% |
Summerland Bank - Eco Home Loan Variable | 5.84% p.a. variable (special offer) | 5.89% p.a. |
| 60% |
Pacific Mortgage Group - Owner Occupied Variable | 5.89% p.a. variable | 5.89% p.a. |
| 80-90% |
Illawarra Credit Union - Bare Essentials Home Loan | 5.89% p.a. variable (special offer) | 5.94% p.a. |
| 95% |
G&C Mutual Bank - First Home Buyer Loan (Special) | 5.90% p.a. variable | 5.93% p.a. |
| 95% |
Arab Bank Australia - Essentials Home Loan Variable | 5.90% p.a. variable (special offer) | 5.94% p.a. |
| 60% |
The Mac Credit Union - Owner Occupied Variable | 5.92% p.a. variable (2-year intro rate) | 7.57% p.a. |
| 95% |
Greater Bank - Great Rate Home Loan Variable | 5.94% p.a. variable (special offer) | 5.95% p.a. |
| 80% |
Hume Bank - liteBlue Owner Occupied Variable | 5.94% p.a. variable | 5.95% p.a. |
| 60% |
Community First Bank - Basic Home Loan Variable | 5.94% p.a. variable | 5.99% p.a. |
| 95% |
The Capricornian - Offset Owner Occupied | 5.99% p.a. variable | 5.99% p.a. |
| 95% |
Northern Inland CU - Dream Home Loan Variable | 5.99% p.a. variable (special offer) | 6.14% p.a. |
| 80% |
Best fixed rate construction loans compared
The table below shows a selection of the best fixed construction home loan rates currently available. These rates are based on principal and interest repayments and the table is sorted by the lowest interest rate, then the lowest comparison rate.
Australian Mutual Bank - Fixed Rate Home Loan | |
|---|---|
| Fixed interest rate | 5.48% p.a., fixed for 3 years 5.63% p.a., fixed for 2 years 5.63% p.a., fixed for 5 years |
| Comparison rate^ | 6.24% p.a. (3-year fixed) 6.35% p.a. (2-year fixed) 6.16% p.a. (5-year fixed) |
| Features |
|
| Maximum loan to value ratio (LVR) | 95% |
Heritage Bank - Fixed Rate Package | |
| Fixed interest rate | 5.79% p.a., fixed for 3 years |
| Comparison rate^ | 6.46% p.a. |
| Features |
|
| Maximum loan to value ratio (LVR) | 95% |
Illawarra Credit Union - The Works Package Home Loan Fixed | |
| Fixed interest rate | 5.79% p.a., fixed for 3 years 5.79% p.a., fixed for 2 years |
| Comparison rate^ | 6.91% p.a. (3-year fixed) 6.99% p.a. (2-year fixed) |
| Features |
|
| Maximum loan to value ratio (LVR) | 95% |
G&C Mutual Bank - Owner Occupied Fixed | |
| Fixed interest rate | 5.80% p.a., fixed for 3 years |
| Comparison rate^ | 5.86% p.a. |
| Features |
|
| Maximum loan to value ratio (LVR) | 95% |
Queensland Country Bank - Rate Package Home Loan Fixed | |
| Fixed interest rate | 5.89% p.a., fixed for 2 years |
| Comparison rate^ | 6.48% p.a. |
| Features |
|
| Maximum loan to value ratio (LVR) | 80% |
Greater Bank - Great Rate Home Loan Fixed | |
| Fixed interest rate | 5.94% p.a., fixed for 3 years 5.94% p.a., fixed for 4 years 5.94% p.a., fixed for 5 years |
| Comparison rate^ | 7.31% p.a. (3-year fixed) 7.15% p.a. (4-year fixed) 7.02% p.a. (5-year fixed) |
| Features |
|
| Maximum loan to value ratio (LVR) | 95% |
Pacific Mortgage Group - Owner Occupied Fixed | |
| Fixed interest rate | 5.99% p.a., fixed for 1 year |
| Comparison rate^ | 5.90% p.a. |
| Features |
|
| Maximum loan to value ratio (LVR) | 80-90% |
Newcastle Permanent - Premium Plus Package Fixed (Special) | |
| Fixed interest rate | 5.99% p.a., fixed for 5 years 5.99% p.a., fixed for 4 years 5.99% p.a., fixed for 3 years 5.99% p.a., fixed for 2 years |
| Comparison rate^ | 7.32% p.a. (5-year fixed) 7.45% p.a. (4-year fixed) 7.59% p.a. (3-year fixed) 7.76% p.a. (2-year fixed) |
| Features |
|
| Maximum loan to value ratio (LVR) | 80% |
Macquarie Bank - Basic Home Loan Fixed | |
| Fixed interest rate | 5.99% p.a. fixed for 3 years |
| Comparison rate^ | 6.13% p.a. |
| Features |
|
| Maximum loan to value ratio (LVR) | 70% |
BCU Bank - Fixed Rate Loan | |
| Fixed interest rate | 5.99% p.a. fixed for 2 years |
| Comparison rate^ | 6.24% p.a. |
| Features |
|
| Maximum loan to value ratio (LVR) | 95% |
Bendigo Bank - Complete Home Loan Fixed | |
| Fixed interest rate | 5.99% p.a. fixed for 2 years |
| Comparison rate^ | 6.41% p.a. |
| Features |
|
| Maximum loan to value ratio (LVR) | 95% |
| Fixed interest rate | Comparison rate^ | Features | Maximum loan to value ratio (LVR) | |
|---|---|---|---|---|
Australian Mutual Bank - Fixed Rate Home Loan | 5.48% p.a., fixed for 3 years 5.63% p.a., fixed for 2 years 5.63% p.a., fixed for 5 years | 6.24% p.a. (3-year fixed) 6.35% p.a. (2-year fixed) 6.16% p.a. (5-year fixed) |
| 95% |
Heritage Bank - Fixed Rate Package | 5.79% p.a., fixed for 3 years | 6.46% p.a. |
| 95% |
Illawarra Credit Union - The Works Package Home Loan Fixed | 5.79% p.a., fixed for 3 years 5.79% p.a., fixed for 2 years | 6.91% p.a. (3-year fixed) 6.99% p.a. (2-year fixed) |
| 95% |
G&C Mutual Bank - Owner Occupied Fixed | 5.80% p.a., fixed for 3 years | 5.86% p.a. |
| 95% |
Queensland Country Bank - Rate Package Home Loan Fixed | 5.89% p.a., fixed for 2 years | 6.48% p.a. |
| 80% |
Greater Bank - Great Rate Home Loan Fixed | 5.94% p.a., fixed for 3 years 5.94% p.a., fixed for 4 years 5.94% p.a., fixed for 5 years | 7.31% p.a. (3-year fixed) 7.15% p.a. (4-year fixed) 7.02% p.a. (5-year fixed) |
| 95% |
Pacific Mortgage Group - Owner Occupied Fixed | 5.99% p.a., fixed for 1 year | 5.90% p.a. |
| 80-90% |
Newcastle Permanent - Premium Plus Package Fixed (Special) | 5.99% p.a., fixed for 5 years 5.99% p.a., fixed for 4 years 5.99% p.a., fixed for 3 years 5.99% p.a., fixed for 2 years | 7.32% p.a. (5-year fixed) 7.45% p.a. (4-year fixed) 7.59% p.a. (3-year fixed) 7.76% p.a. (2-year fixed) |
| 80% |
Macquarie Bank - Basic Home Loan Fixed | 5.99% p.a. fixed for 3 years | 6.13% p.a. |
| 70% |
BCU Bank - Fixed Rate Loan | 5.99% p.a. fixed for 2 years | 6.24% p.a. |
| 95% |
Bendigo Bank - Complete Home Loan Fixed | 5.99% p.a. fixed for 2 years | 6.41% p.a. |
| 95% |
How do construction loans work?
Construction home loans are designed to fund the building of residential homes or investments, as well as major renovations to existing dwellings. They work similarly to standard home loans, but with some key differences.
- As part of the application process, you need to give the lender your builder's fixed-price quote detailing the total cost of the project broken down into each stage of construction.
- If approved, the lender will release funds as needed to complete each stage of the construction. This is called a ‘progressive drawdown’.
- You’ll only pay interest on the amount you’ve drawn down.
- You have the option to make interest-only home loan repayments while construction is in progress.
- When the build is finished your construction loan will revert to a normal home loan and you’ll start making both principal and interest repayments.
- As with a normal home loan, it’s best to have a deposit equal to 20% of the build cost before applying (i.e. a loan-to-value ratio below 80%). You may be approved with as little as 5% but you may have been charged extra fees such as LMI along with higher interest rates.
- When your home is built your construction will be converted into a standard owner-occupier home loan (or an investment property loan if you are renting the home out).
Why go interest-only on a construction loan?
“While you’re doing the construction, most lenders will allow you to pay interest-only on your loan for 12, 18 or 24 months. The reason a lot of borrowers want to do that is for cash flow. While you're building you're generally renting, which is a big added expense and lower repayments can be a big help.”
Mansour Soltani, Money.com.au's home loan expert
Construction loan versus standard home loan
| Construction loan | Standard home loan | |
|---|---|---|
Purpose | Finance the construction of a new home or major renovation | Finance purchase of existing home (including new builds) |
Deposit required | At least 5% (but ideally 20%) | At least 5% (but ideally 20%) |
Finance provided | Gradually as payments are required at various stages by the builder | All loan funds are released at once |
Interest | Charged on amounts drawn down only | Charged on the full loan amount from the start |
Repayments | Usually interest-only during construction | Usually principal and interest, but some loans offer an interest-only option for a set period |
Construction home loan progress payments (how the loan funds are released)
1
Foundations
Laying foundations of the house and installing plumbing (e.g. 10% of total loan).
2
Frame
Building the frame of your property including roofing, windows, walls and trusses (e.g. 15-20% of total loan).
3
Lock up
Construction of internal walls, doors and insulation of the home. This includes everything that is required to be able to ‘lock up’ your property and make it weathertight (e.g. 30-35% of total loan).
4
Fit-out
The finer details of the home are added such as shelving, kitchen & bathroom cabinetry, tiles and internal cladding (e.g. 20% of total loan).
5
Completion
Everything that is required to complete the home. This may include installation of retaining walls or fences as well as cleaning of the site (e.g. 15% of total loan).
IMPORTANT: With the exception of the final payment upon completion, your lender won’t inspect your property to ensure each stage has been completed. Instead, it will be your responsibility to check the work has been finished, and to then forward the builder’s invoice to the lender for payment.
Expert tip: How construction loan progress payments work
"When you're negotiating with your builder, they will outline how much they want to be paid at each stage. But it's actually the bank that will dictate how the builder gets paid. As a client, it’s best to have that conversation up front with your builder to set the expectation that at the end of the day, how and when the payments are made will be up to the bank and not you."
Mansour Soltani, Money.com.au's home loan expert
How to apply for a construction home loan
To apply for a construction loan, you’ll need to give the lender all the usual documentation required when taking out a normal home loan, including:
- Proof of identity
- Proof of income
- Record of expenses
- Proof of your other debts
- Proof of savings, investments and assets
You’ll also need to supply documents relating to your planned build...
Other documents required for a construction loan application
Fixed-price building contract
While some builders are reluctant to offer fixed-price building contracts (due to quickly-rising costs), it’s usually a requirement of the lender that the contract is based on a fixed price.
This will generally need to include:
- An outline of each construction stage
- A progress payment schedule
- A construction timeline
- Total costs for the project
Council approved building plans and permits
This will also be provided by your builder or architect and will include all details of your home including layout, size, specifications, materials used and more.
An ‘as if completed’ valuation
Before your construction loan is formally approved your lender will arrange for a valuation of the home’s value as if it were completed. To do this, the valuer will need both the building contract and the building plans.
The estimate of the valuation on completion will be based on recent sale prices of other comparable homes in the area. This is done to ensure you’re not overspending on your build, and that your home will be worth more than the loan amount when completed (i.e. avoiding negative equity).
Proof of insurance
The lender will want to see proof that the property and project is adequately insured throughout. This generally includes:
- Builder’s All Risk Insurance: Covers risk to the building while it’s being constructed.
- **Public Liability Insurance: **Covers damage to property or injury to people relating to the construction.
Owner-builder construction loans explained
To secure a construction loan, you usually need to sign a contract with a qualified builder. If you want to build your home yourself, you’ll need to apply for an owner builder construction loan, offered by a limited number of lenders.
Getting approval can be difficult for this type of loan because lenders view owner-builder projects as more risky (e.g. prone to cost overruns). If you’re a licensed builder you may be able to secure a loan for up to 80% of the build’s cost - if you’re not you may only be able to borrow 50-70%.
Because lenders are so strict with these types of loans, before you apply you should make sure:
- You have a deposit of at least 20% if possible.
- You have a good credit score and minimal debt.
- You have a detailed plan for construction including cost estimates and quotations for tradesmen and materials.
Since not all lenders offer these types of loans, it may be better to speak to a mortgage broker to help you find the right fit.
Can I build or renovate without a construction loan?
You generally need a construction loan to build a new home or carry out major structural renovations to a home. Lenders are usually reluctant to provide finance for a major building project up-front through a standard home loan.
However, for non-structural work, a construction loan may not be necessary. Instead, if you have a high level of equity in your property, you may be able to refinance your home loan to borrow more.
Our home loans expert, Mansour, offers the following example:
-
“Let's think about a property owner with a home worth $1 million and $500,000 of equity. In other words, their home loan is $500,000."
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“And let’s say they want to do a couple of non-structural renos costing $200,000 in total. What they can do is talk to their bank or broker and l say, ‘I want to release equity’."
-
“If the bank approves it, it will increase their existing loan from $500,000 to $700,000, with a new separate loan account the borrower can withdraw from to pay for the renovations as they need it."
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“Now instead of the 50% equity they started with, it's back at 30%.”
What about home renovation loans?
Another option for smaller renovations is a home renovation loan. These are different to construction loans and are essentially personal loans that can be used to pay for non-structural renovations.
Home renovation loans are generally easier and faster to apply for, with shorter repayment terms (1-5 years typically). However, personal loan interest rates tend to be higher than what’s available with a construction loan.
Construction home loans FAQ
What is a construction loan?
A construction loan is a home loan specifically designed to fund the construction of residential homes and investments.
Which lenders offer construction loans?
Most major banks and lenders offer construction loans including:
- Westpac
- NAB
- Commbank
- ANZ
- ING
- HSBC
- Macquarie Bank
- Suncorp Bank
- St.George Bank
- Heritage Bank
- BOQ
- Beyond Bank
- Bendigo Bank
- Bankwest
- BankSA
- Bank of Melbourne
- Great Southern Bank
- Bank Australia
Why are construction loans hard to get?
Banks may have slightly more stringent restrictions and credit policies when assessing construction loans because they are considered higher risk than regular home loans. That’s because:
- Lenders cannot see the finished home when issuing the loan (they are relying on estimates of the eventual value of the home).
- There are risks that costs may overrun.
- The property may be worth less than the loan amount when completed.
Another barrier is the requirement of lenders to have a fixed-price contract from the builder before approving the loan. Some builders are reluctant to offer fixed-price contracts.
Are construction loan interest rates higher?
Because of the increased risk and uncertainty for the lender, in many cases construction loans are more expensive compared to average mortgage rates.
But some lenders offer the same rates on construction loans as they do on other home loan (e.g. first home buyer loans). They key is to shop around for the best rates.
What are the requirements for a construction loan?
To secure a construction loan you must have:
- A deposit equal to at least 5% of the total cost of the construction and land (but at least 20% is preferable).
- A contract from a registered builder including a quote for the total cost, a schedule for the build, and a cost breakdown for each stage of the build.
- Building plans.
You’ll also need all the documents required to apply for a normal home loan including:
- Proof of identity
- Proof of income (if you cannot provide this using the usual documentation because you are self-employed, you could consider a low doc home loan)
- Proof of debt
- Proof of savings, investments and assets
- Record of spending
- Gift letter (if part of your deposit has been given to you as a gift)
Can I get finance to build a new home before I have sold my current property?
This may be possible through what's know as a bridging loan. This type of loan is designed for borrowers who have an existing home but don't want to sell it before purchasing their next property.
Home Loans guides and resources
What's the next step on your property journey? Our home loan guides will help you navigate the road ahead, whether you're buying, building or looking to save on an existing loan.
Written by
Loans Expert
Shaun McGowan
Reviewed by
Editor
Sean Callery
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