12 Apr 2022

Can You Pay Principal and Interest on Construction Loans?

Principal and Interest Construction Loan

Construction loans differ from home loans. While mortgages have a 30-year term, construction loans only last the duration of the project. It takes between six to 12 months to build a home in Australia. Therefore, the loan lasts the same amount of time. During the construction period, the loan becomes an interest-only product. Owner-builders and investors can repay the interest that accrues during the construction period. However, it is not mandatory to repay principal and interest.

When an owner-builder or investor applies for a construction loan, the process takes a few weeks more than a mortgage. Applicants must provide their building plans, timeline, and proof of land ownership. If they have already obtained permits to build, the documentation is very helpful too.

Once the construction project reaches completion, the loan becomes due. For owner-builders, the option to roll the loan into a mortgage choice is available to them. For investors, it works a little differently. They must sell the completed property to repay the loan. They can also ensure that the property has tenants. Thus, their rent helps pay off the loan.

Mortgage House finances construction projects for owner-builders and investors. Our loan specialists have tools that help them process loans efficiently. 

Principal and Interest Construction Loan Conclusion

During the construction period, the loan turns into an interest-only product. Borrowers can repay principal and interest but they can wait until the end of the construction project to make a lump repayment. Our Mortgage House loan specialists can provide more details about the repayments. Contact our team today.

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