Extra payments during construction
If you are building a new home, it is important to understand how to make your loan repayments work for you.
- What is a construction repayment?
- Keystart charges interest during construction
- How will extra payments help?
- After construction
- Other costs during construction
- How to arrange extra payments
Once your block of land is funded land settlement is complete and your Keystart loan gets underway. We refer to this as land settlement. At this point you are required to make minimum monthly construction payments of $200 per month throughout the construction of your home. You can make payments weekly, fortnightly or monthly.
Keystart sets this minimum amount as we are aware many customers may be paying rent while their home is being built.
Your first construction payment is due one calendar month after the date of land settlement. This is when we begin to fund your home loan. If you have opted to pay weekly or fortnightly your first payment will commence earlier. This guarantees that you will meet your minimum monthly repayment on time.
Keystart charges interest during construction
Interest is charged to your loan during the construction phase as your loan is progressively being drawn down. For a construction loan, interest charges begin the date we first fund any part of your loan. This may be the payment for your land, charged on the day of land settlement a payment to your builder, or the First Home Owners Grant credit to your account (see more below).
Interest at different stages of your construction of your home
There are three stages that Keystart makes a payment on your behalf to your builder, referred to as a draw down or disbursement.
- After brick completion (when your home is 40% complete)
- After lock-up (when your home is 80% complete) and
- After practical completion (when your home is 100% complete)
Your overall balance of your loan will increase at each stage as payments are made to your builder, so interest charges will also increase after each payment.
This will affect the balance of your loan at the end of construction. The amount of your minimum monthly loan repayments will therefore be higher than estimated in the loan documentation.
Interest on First Home Owners Grant
If you are eligible for a First Home Owners Grant (FHOG), Keystart credits the grant amount to your loan account. You may notice this entry in your first loan statement.
The grant funds are not released to Keystart until the Office of State Revenue makes the payment to us. This occurs approximately two weeks after the first payment to your builder has been made after brick completion. The Office of State Revenue will not release the funds to Keystart until they are satisfied the build is underway. Keystart charges interest on the advanced amount until we actually obtain your grant funds.
How will extra payments help?
By making additional payments during the construction of your home, you will be reducing the interest being accrued on your loan amount. The amount you can reduce your interest by throughout construction will depend on the additional amount you pay.
If you would like to find out your interest charges at different stages of your construction, we can advise you of the amount of interest being charged. You can choose to increase your repayments at any point during the construction phase. Contact us
By paying an additional amount you may also be preparing yourself, and your budget, for paying your home loan repayments after construction.
You are not required to make any additional payment but every little bit helps during your construction period.
Joanne is building her own home. Her builder has told her the construction should take six months. Joanne reviews her budget and decides she will pay $400 per month to Keystart during the construction phase. At the end of the six month build, Joanne has paid an additional $1,200 to Keystart. This amount will be taken into account when Keystart calculate her ongoing loan repayments after her construction is finished. Her final loan balance amount will be slightly less than if she did not make the additional payments.
After you have completed the construction of your home, we will make our final payment to your builder. This is when we refer to your loan as being fully funded.
You will then be notified of the minimum monthly loan repayment amount you will be required to pay going forward. This will take into account the interest charges and any additional repayments you may have made to Keystart during the construction phase.
You may find the due date for your loan repayment changes. This is because your first repayment, after the construction phase, is due within a month of your loan becoming fully funded. This may differ from the due date for your repayments during the construction phase.
Please note, any additional amounts paid into the loan account during the construction phase are not available for redraw.
Building your own home is an exciting process. It may be tempting to change your mind on your house plans or materials. Any changes you make to the floor plan of your home or materials used can affect the overall cost of your build, sometimes significantly.
Your Keystart loan amount was approved based on the original plans you have selected.
Keystart must be contacted if you are considering making any changes to your build. All changes and variations must be approved by Keystart before the changes can be agreed with your builder. This is to ensure that the variations don’t increase your expenses or debts and that you have the financial capacity to manage your home loan repayments once they come into place. Contact us
Depending on the changes, you may need to fund these costs yourself immediately before any changes are made to the building plans.
Keystart recommends that you seek your own independent financial advice prior to making any decisions about your financial needs. The examples given in this post are provided for illustrative purposes only.