Construction Loan Features for Corporate Lawyers

Construction finance operates differently to standard home lending because the asset you are borrowing against does not exist when the loan settles.

You only pay interest on the amount drawn down at each stage of the build, rather than the full loan amount from day one. This structure affects both your cash flow during the project and the documentation required by the lender. Understanding how progressive drawdown works, what lenders charge for multiple payments, and how contract types influence approval will determine whether your project proceeds on schedule or stalls at the first progress claim.

Progressive Drawdown and Interest Charges

Lenders release funds in stages as your builder completes specific milestones, and you only pay interest on the cumulative amount drawn to that point. Consider a lawyer building a custom home with a $900,000 construction loan. At slab stage, the builder may claim $180,000. You pay interest only on that $180,000 until the next drawdown occurs at frame stage, when another $220,000 is released. Your interest charges then apply to $400,000, not the full loan amount.

This structure reduces your holding costs during construction but requires you to maintain sufficient cash flow to cover increasing interest payments as more funds are released. Most lenders offer interest-only repayment options during the construction period, converting to principal and interest once the build completes and you occupy or settle into the property.

Lenders typically require a valuer to inspect the site before releasing each payment. This process confirms the work has been completed to the value claimed by the builder. The inspection fee, often referred to as a Progressive Drawing Fee, ranges from $150 to $300 per visit depending on the lender. On a standard four-stage draw schedule, you should budget approximately $1,200 in inspection costs across the build.

Fixed Price Contracts and Cost Plus Structures

Lenders strongly prefer fixed price building contracts because they limit exposure to cost overruns. A fixed price contract specifies the total build cost upfront, with variation clauses restricted to changes you initiate. This gives the lender certainty about the final loan amount required and reduces the risk that the project exceeds the approved facility.

Some custom builders work on a cost plus contract, where you pay the actual cost of materials and labour plus an agreed margin. Lenders view these arrangements as higher risk because the final cost remains uncertain. If you are engaging a builder on this basis, expect more conservative loan-to-value ratios and stricter requirements around contingency reserves. Several lenders will decline cost plus structures entirely, particularly where the build involves architectural features or materials that are difficult to value at the outset.

When applying for construction loans for lawyers, your lender will require council approval and stamped building plans before committing funds. They will also verify that your builder holds current registration and adequate insurance. Owner builder finance is available but attracts higher interest rates and lower borrowing limits because you carry the project risk personally, including coordination of sub-contractors such as plumbers and electricians.

Land and Construction Packages

A land and build loan combines the purchase of suitable land with construction finance in a single facility. The lender advances funds to settle the land purchase, then holds the balance in reserve for progressive release as the build proceeds. You pay interest only on the land component until construction drawdowns commence.

This structure works particularly well for house and land packages offered by project home builders, where the land and design are selected together. The lender can approve both components simultaneously, provided council plans have been submitted and the builder has confirmed a start date.

Most lenders require you to commence building within a set period from the Disclosure Date, typically six to twelve months. If the project does not start within that window, the lender may withdraw the construction facility or require a fresh valuation and credit assessment. Delays in obtaining development application approvals or council sign-off on engineering plans are the most common causes of timeline extensions. If you anticipate delays, communicate them to your lender early rather than allowing the facility to lapse.

Progress Payment Schedules and Draw Timing

Your builder will propose a progress payment schedule tied to specific construction milestones. A typical schedule includes base stage, frame stage, lock-up stage, fixing stage, and practical completion. The percentage allocated to each stage varies by builder and contract, but the structure generally aligns with the work completed and materials on site at that point.

The lender's valuer must approve each claim before funds are released. In our experience, disputes arise when builders request payment for materials delivered to site but not yet installed, or when weather delays push completion of a stage beyond the anticipated timeframe. The contract should specify whether payment is triggered by commencement or completion of each stage, and whether materials on site but not yet fixed can be claimed.

If you are undertaking a major renovation rather than a new build, the same progressive drawdown principles apply. A house renovation loan will release funds based on demolition, structural work, services installation, and finishes. Lenders generally require more detailed costings for renovations than new builds because the scope can change as existing structure is opened up. Allowing a contingency of at least 10% above your builder's quote is prudent, particularly for older homes where concealed structural issues may emerge once walls are removed.

Interest Rate Structures During Construction

Construction loan interest rates are typically variable during the building phase, even if you intend to fix the rate once construction completes. Lenders price construction facilities separately to standard home loans because of the increased administration and valuation costs involved. The margin above the standard variable rate ranges from 0.10% to 0.50% depending on the lender and your overall borrowing position.

Some lenders offer a construction to permanent loan, where the facility automatically converts to a standard home loan once the build is complete and you have obtained an occupancy certificate. This avoids the need to refinance or reapply after construction, locking in the agreed rate and terms from the outset. Other lenders treat construction as a separate product, requiring you to discharge the building loan and take out a new mortgage once the property is habitable.

If you are considering additional payments during construction to reduce the principal as funds are drawn, confirm whether your lender permits this. Most construction facilities are interest-only by default and do not offer redraw or offset during the build phase. These features typically become available once the loan converts to a standard mortgage. For lawyers seeking to minimise interest costs during the build, discuss whether debt recycling for lawyers strategies can be implemented once the property settles, rather than attempting to reduce principal during construction.

Call one of our team or book an appointment at a time that works for you to discuss your construction project and the loan structure that aligns with your contract, timeline, and cash flow requirements.

Frequently Asked Questions