Construction loans and progress payments

Last updated 3 November 2026 · Reviewed by 360 MMS Compliance

How does a construction loan work?

You sign a fixed-price contract with a builder, and the loan funds the build in stages, called progress payments or drawdowns. Money is released as the build progresses, so you're not borrowing the full amount on day one. Because funds are drawn in stages, the balance grows over the build and reaches the full loan amount at completion. We lend on fixed-price builder contracts only; owner-builder construction isn't offered.

What are progress payments?

Your building contract sets out the stages of the build and how much is paid at each one. Common stages are:

• base or slab
• frame
• lock-up
• fixing
• practical completion.

When a stage is reached, the builder issues an invoice and the payment for that stage is released from your loan. Read the payment schedule in your contract carefully before you sign, and ask your broker how your deposit and any funds you're contributing fit in.

What repayments do I make during the build?

On some of our construction loans, interest-only repayments may be available during construction. As each stage is drawn, the interest you pay rises with the balance. After construction, repayments generally move to principal and interest, or to interest only where your loan allows it. Some house-and-land options let you pause repayments altogether for a period, as explained below.

What are house-and-land options with an approved builder?

Some of our construction loans are for buying a house-and-land package on a fixed-price contract with an approved builder. These options are for buying, not for refinancing an existing loan. They're designed to help with cash flow while the home is being built, for example if you're still paying rent. Each application is assessed on its circumstances and lending criteria.

How do paused repayments work, and what do they cost?

Where a pause is available, you may be able to stop repayments for a period while the land is bought and the home is built. During the pause, interest is still charged. It's capitalised, meaning it's added to the loan, and repaid over the rest of the loan term. That means your loan balance is higher when repayments start, and you pay more interest over the life of the loan than if you'd made repayments throughout. Your broker can explain how long a pause could run and what it would add to your loan.

Can investors use a construction loan?

Yes. On some house-and-land options, investors can also pause repayments during construction, so repayments can start around the time the property is ready to rent. Interest during that period is added to the loan, so the same extra cost applies. A two-part contract, with the land and the build bought separately, usually means stamp duty is charged on the land only, not on the finished home. Stamp duty rules differ between states and territories, so confirm the position with your conveyancer or the state revenue office.

What deposit do I need, and is there a risk fee?

The deposit you need depends on the loan, the loan amount, the property and whether you'll live in the home or rent it out. Depending on the size of your deposit, a construction risk fee may apply instead of lenders mortgage insurance (LMI), and on some loans it can be added to the loan. Your broker will confirm the deposit and any fees for your scenario from the current rate sheet.

FAQs

General information only. It doesn't take into account your objectives, financial situation or needs, and it isn't credit, tax or legal advice. All loans are subject to lending criteria, and fees and charges apply. Kuone Pty Ltd T/As 360 MMS (ABN 81 621 683 672), Australian Credit Licence 504193.