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 and 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 period payments of at least $200 or more while your home is being built. You can make payments weekly, fortnightly or monthly.
Keystart’s construction period payment amount is based on the minimum monthly principal and interest repayment for your approved home loan and takes into consideration the rent or board you pay while you build your home. This payment is designed to reduce the amount of interest added to your loan during your construction period while still being affordable for you.
Depending on the amount of your payment, the minimum monthly construction period payment may reduce the interest added onto your loan during construction.
You're encouraged to pay more than this minimum payment if you can afford to do so. By making additional payments during the construction of your home, you’ll be further reducing the interest accruing on your loan amount. You can choose to increase your repayments at any point during the construction period.
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 payment on time.
Your broker or home loan specialist will be able to calculate your minimum monthly construction period payment once you complete an application.
Let's look at an example:
If you have been approved a home loan amount of $392,000, your minimum monthly principal and interest repayment would be $1,995.53*. If you were paying $380 rent per week, then your minimum monthly construction period payment would be calculated as $1,995.53 - $1,520 (your monthly rent), making your minimum monthly construction period payment $475.53 per month.
If however, you were paying $460 rent per week, your minimum monthly construction period payment would be $200. This is because $1,995.53 - $1,840 (your rent as a monthly figure) = $153.53 which is less than the minimum required $200 per month.
* Based on Keystart variable interest rate of 4.54% effective 24 March 2020.
This approach to minimum monthly construction period payment reflects Keystart’s continuous review of our responsible lending obligations.
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 Keystart advances the amount of the First Home Owners Grant 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.
You can see the interest charges on your account in the Client Portal.
If you are eligible for a First Home Owners Grant (FHOG), Keystart advances 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 further reducing the interest accrued on your loan amount. You can choose to increase your payments at any point during the construction period.
By paying an additional amount you can also prepare yourself, and your budget, for additional loan repayments after construction.
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 payments 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.