How to choose the best construction loan

The construction loan is one of the most integral parts of building a home, as it could impact the success of the build. But with so many construction loans from a myriad of lenders on the market, it’s easy to feel overwhelmed. 

To make the whole search a breeze, we’ve listed down important factors to consider when applying for a construction loan: 

Competitive interest rates 

When looking for a loan, most borrowers focus on the interest rate as it greatly affects the overall cost of the loan. Lower interest rates typically mean smaller repayments and significant savings on the total cost of the loan. However, that's not always the case with loans that offer extremely low rates. These suspiciously low interest rates are often used to distract borrowers from exorbitant fees which could hike up the costs. 

If you’re completely new to the world of home construction loans, it’s best to do a bit of research before applying for finance. Talk to different lenders to ask about their rates. Or simply go online and look at what the construction loan interest rates on the market look like. This will give you a better idea of how much the going interest rate is and whether a lender offers a competitive rate. 

After researching, you can see what construction loan best fits your financial situation using an online home loan calculator. Although the calculator provides only an estimate of your repayments, it’s still a useful tool to help you make an informed decision. 

Minimal additional loan fees 

Aside from the interest rate, lenders may also charge borrowers upfront and ongoing fees such as application fees, monthly and annual fees, early or late payment fees, and specific fees relating to the construction process. Different lenders have their own set of fees they add to their loans. For instance, some lenders may charge application fees, ongoing fees, and early payment fees while others like loans.com.au don’t. 

Small fees here and there may not seem like a lot, but they could easily snowball and cost you thousands over the loan term. Before applying for any construction loan, be aware of all the fees, so you’re not blindsided later on.

Low comparison rates 

A loan’s comparison rate tells you the true cost of the loan. It’s a combination of the loan’s interest rate with some of the additional fees imposed by the lender (such as application fees, ongoing fees, exit or discharge fees, etc). Comparison rates are usually higher than the advertised interest rate because they account for certain fees and charges that you may not be aware of. 

Always consider the comparison rate to see if a construction loan is really worth the money. If you want the best deal on your loan, it’s important to keep an eye out for this. 

Useful construction loan features 

Loan features are inclusions or attributes included on your construction loan to improve the borrowing experience and/or help manage costs. Examples of loan features include offset sub-accounts, redraw facilities, unlimited additional repayments, and the like. 

There are lenders out there that offer loans with a slew of features. However, the number of features a loan has is not indicative of its quality. More is not always better. When looking for a construction loan, don’t be too impressed by the number of features because they may not be useful for you specifically.  

When applying for a loan, make sure that the features can help you save money, make it easier to manage your payments, and are otherwise beneficial for your financial goals. Always ask what your construction loan and lender can do for you. 

Simple construction loan process 

Construction loans work a bit differently than your typical mortgage. Instead of getting all the funds in one go, you’ll receive them in staggered payments throughout the construction process. The way interest is calculated and how repayments are paid out are also different. 

Construction loans can be difficult to manage for some because of the process. For a smooth and hassle-free experience, finding a lender that makes the whole thing as simple and convenient as possible is important.

At loans.com.au, for instance, keeping track of your construction loan is no challenge. From application to settlement, everything can be done online and through intuitive apps.  

If you’d like to know more about how easy it is to apply and keep track of your loan with loans.com.au, get in touch with our friendly lending specialists. They will be more than happy to walk you through the construction loan process and answer any queries! 

Find great construction loans at loans.com.au

Check out our construction home loan options and find the one that suits your needs best. From standard construction finance to green construction loans, we can help you get the finance you need to build your dream home. Pre-qualify online for a construction loan today!