Understanding Construction Loan Progress Payments in Australia

What Are Construction Loan Progress Payments?

Construction loan progress payments are a series of payments made to your builder at various stages of the building process. Unlike traditional home loans, where funds are disbursed in a lump sum, construction loans are structured to release funds incrementally. This arrangement helps mitigate risks for both lenders and borrowers by ensuring that money is only paid out for work completed.

Key Stages of Progress Payments

Typically, construction loans in Australia involve five key stages of progress payments:

1. Slab or Base Stage: This stage involves laying the foundation of your home. Payments cover the costs of site preparation and slab pouring. Generally, about 10% of the total loan amount is released.

2. Frame Stage: During this phase, the framework of your home is constructed. This includes walls, windows, and roofing. Around 15% is typically released at this stage.

3. Lock-Up Stage: As the name suggests, this is when the house is enclosed, with external doors and windows installed. Approximately 35% of the loan is disbursed.

4. Fit-Out or Fixing Stage: This stage covers the installation of internal fittings such as plumbing, electrical systems, and cabinetry. It's common for about 20% to be released here.

5. Completion Stage: The final stage involves finishing touches like painting and landscaping. The remaining 15%-20% is released once the project is complete and inspected.

Practical Tips for Managing Progress Payments

• Maintain Open Communication: Regularly communicate with your builder and lender to ensure all parties are on the same page regarding timelines and expectations.

• Stay On Top of Inspections: Each stage of progress payments requires a professional inspection to verify the work completed. Schedule these inspections promptly to avoid delays.

• Budget for Variations: Construction projects often involve changes. Keep a contingency fund for unexpected variations that might not be covered by your loan.

• Understand Your Loan Agreement: Familiarise yourself with the terms and conditions of your loan, including interest rates and repayment structures.

Common Mistakes to Avoid

• Underestimating Costs: One of the most common pitfalls is underestimating the total cost of construction. Ensure your loan amount covers all foreseeable expenses, including permits and utilities.

• Delaying Inspections: Delaying inspections can slow down the release of funds and delay your construction timeline. Schedule these in advance.

• Lack of Documentation: Ensure all work completed is well documented, as lenders require proof before releasing the next payment tranche.

How Esteb and Co Can Help

At Esteb and Co, we specialise in guiding clients through the complexities of construction loans. Our experienced brokers can help you:

• Navigate loan terms and conditions
• Liaise with lenders for smooth fund disbursement
• Provide expert advice on budgeting and contingencies

Our personalised approach ensures that you have the support you need at every stage of your construction journey.