What is the Average Interest Rate on a Construction Loan?

Real estate loans carry different interest rates. Even though a home purchase carries risk for the lender, it’s the least risky. The Australian government provides grants, insurance, and other initiatives to help lenders invest in future homeowners. It’s not the same for construction loans, so they carry more risk. Therefore, it carries a higher interest rate.

The average construction loan interest rate hovers around 2.2% to 2.5%. Whereas the mortgage interest rate hangs around 2%. Even though the interest rate for the construction loan stands higher, non-bank lenders, such as Mortgage House, provide tools to offset a chunk of the premium

In addition, you can pick between the variable interest rate construction loan and the fixed-rate version. Construction loans include drawdowns. You only pay interest on the outstanding amount as opposed to the total loan amount. Your project may incur less than the anticipated cost. This decreases your total costs.

Interest rates for the construction loan are higher because the total risk is unknown. The house doesn’t exist yet, so it’s not possible to appraise it. There’s no way to confidently assume market conditions either. When the house is complete, the conditions may be favourable, which increases the property’s value. Conditions can also travel in the other direction.

Construction Loan Interest Rate

When you explore your funding options, you’ll find that the construction loan interest rate is higher than other home loan interest rates. However, our Mortgage House loan specialists explore methods to manage costs and rates. For more information, contact our team.