Building a new home? Here's everything you need to know about construction payments and how they work with your Keystart home loan.
Once your block of land is funded land settlement is complete, your Keystart loan gets underway. We refer to this as land settlement. At this point you're required to make minimum monthly construction payments of $200 per month throughout the build. You can make payments weekly, fortnightly or monthly.
Keystart sets this minimum amount as we are aware you may be paying rent while your home is being built.
Your first construction payment is due one calendar month after the date of land settlement. If you have opted to pay weekly or fortnightly your first payment will start earlier to ensure you meet your minimum monthly repayment on time.
Interest is charged to your loan during the construction phase, as this is when we start to draw down your loan funds. The start date may be the date of the payment for your land, charged on the day of land settlement or as a payment to your builder, or the date a First Home Owners Grant is credited to your account, if applicable (see more below).
There are three stages when Keystart makes a payment on your behalf to your builder, referred to as a draw down or disbursement.
The 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.
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. 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.
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.
You can choose to increase your repayments at any point during the construction phase.
By paying an additional amount you can also prepare yourself, and your budget, for additional loan repayments after construction.
Let's look at an example
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 home is finished. Her final loan balance amount will be slightly less than if she did not make the additional payments.
Building your own home is an exciting process. It may be tempting to change your mind on your house plans or materials. However 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're 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.
Depending on the changes, you may need to fund these costs yourself immediately before any changes are made to the building plans, so save yourself some stress and check with us first!
So, your home is finally finished! This is such a busy time with a lot of things finally coming together. One of the steps for us at this stage is to make our final payment to your builder. This is when we refer to your loan as being fully funded.
We'll let you know at this point what your minimum monthly loan repayment amount will be for your loan. This will take into account the interest charges over the build period and any additional repayments you may have made to Keystart during that time.
You may find the due date for your loan repayment is different from the due date of your construction payments during the build. This is simply because your first loan repayment is due within a month of your loan becoming fully funded, which may be a slightly different due date from your construction payments.
Please note, while any additional amounts paid into the loan account during the construction phase are taken into account for your loan balance those funds are not available for redraw.
Additional payments can be made by increasing your scheduled direct debit amounts or by manual payments via Bpay. Please contact us for your manual payment details.
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.