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What's different about a construction loan?

Building your own home is an exciting but sometimes overwhelming process. With different key players involved, it’s essential to have a good understanding of what is involved at each stage. Here's everything you need to know about construction payments and how they work with your Keystart home loan.

Building your own home is an exciting but sometimes overwhelming process. With different key players involved, it’s essential to have a good understanding of what is involved at each stage.

Here's everything you need to know about construction payments and how they work with your Keystart home loan.

What is a construction payment?

Once your block of land is funded, your Keystart loan gets underway. We refer to this as land settlement. From this point, you're required to make minimum monthly construction period payments throughout the complete period of your build.

You can make these payments on a weekly, fortnightly or monthly basis.

Our construction period payment amount is determined by a means-based approach and is designed to reduce the amount of interest added to your loan during your construction period while still being affordable for you. It is based on your 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.

You're encouraged to pay more than your minimum construction period payment if you can afford to do so.

By making additional payments during the construction of your home, you may 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 repayment on time. 

Your broker or Keystart 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.

Keystart has a minimum $200 per month construction payment. Here's an example of how the minimum works.

If 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.

Keystart charges interest during construction

During your building process, we arrange for payments to be made for the purchase of the land and the progress payments to your builder. Interest accrues on your loan as soon as we start to draw down these funds, or if we advance the First Home Owner Grant for the purchase of your land or as a payment to your builder. You can see the interest charges on your account in our Client Portal.

Login to the Client Portal

Different stages of the construction of your home

There are four stages when Keystart makes a payment on your behalf to your builder, referred to as a drawdown or disbursement.

  1. At slab down
  2. After brick completion (when your home is 40% complete)
  3. After lock-up (when your home is 80% complete) and
  4. After practical completion (when your home is 100% complete)

The overall balance of your loan will increase at each stage as these 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. 

Interest on First Home Owners Grant

If you are eligible for a First Home Owner Grant (FHOG), Keystart advances the grant amount to your loan account to enable eligible customers to use these funds towards the purchase of land or as payment to your builder. 

We use the term 'advance' as the grant funds are not released to Keystart until the Office of State Revenue makes the payment to us. 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 amount we advance until we actually obtain your grant funds.

You may notice entries in your first loan statement showing the advance of the FHOG and the eventual payment into your account.

 

More about the FHOG

Consider paying more than minimum during your build

By making additional payments during the construction of your home, you'll 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.

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 Keystart at this stage is to make the 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 based on your loan term. 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. This amount will differ from your minimum construction period payment. 

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.

How to arrange extra payments

Additional payments can be made by increasing your scheduled direct debit amounts or by manual payments via Bpay. Please contact us for manual payment details.

Approval required for any changes

Any changes or upgrades during pre-start with your builder must be approved by Keystart before being agreed with your builder. 

Building your own home is an exciting process. It may be tempting to change your mind about 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.

If you decide to get a Keystart loan, your construction loan amount is approved based on the original building contract you signed. Keystart must be contacted if you consider making any changes to your building contract. All changes and variations must be approved by Keystart before they can be agreed with your builder. We need to ensure the variations meet Keystart's minimum building requirements. We also need to check 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!

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. 

Find out more

Our home loan specialists are able to provide assistance through the home loan application process, from start to finish. You can find if you may be eligible for a Keystart home loan and find out how much you may be eligible to borrow.

  • How much can I borrow?

    By giving us a few basic details, we can tell you how much you may be able to borrow.

    How much can you borrow?
  • Before you apply

    There are some minimum requirements and guidelines to consider before beginning an application for a loan. 

    What you need to know
  • Find out if you qualify

    You can find out if you qualify for a Keystart loan in under five minutes.

    Do you qualify?