Unlock the secrets to Construction Loan Fees

Construction loan fees differ from standard home loan costs because you're borrowing in stages, not all at once.

When you're planning to build in Ocean Grove, whether it's a new home on a vacant block near Shell Road or a knockdown rebuild closer to the foreshore, the fee structure matters as much as the rate. You'll encounter charges that don't appear on typical purchase loans, and some of those charges repeat throughout the build.

What Fees Apply to a Construction Loan?

Most lenders charge an application fee, a valuation fee for the land and proposed build, and a progressive drawing fee for each stage of construction they fund. The progressive drawing fee typically ranges from $150 to $400 per drawdown, and you might have five or six drawdowns across a standard build. That adds up to between $900 and $2,400 over the course of your project.

Some lenders cap these fees or waive them entirely if you're borrowing above a certain threshold. Others bundle the valuation into a flat establishment fee. The structure varies, so it's worth comparing what each lender actually charges rather than focusing solely on the advertised interest rate.

Consider someone building a four-bedroom home on a land and construction package near Grubb Road. They've locked in a fixed price building contract at $480,000, plus they own the land outright. The lender requires five progress inspections: base stage, frame stage, lockup, fixing stage, and completion. At $300 per inspection, that's $1,500 in progressive drawing fees alone. If the lender also charges a $600 application fee and a $350 valuation, the upfront and ongoing fees total $2,450 before a single dollar is drawn down for the build.

How Interest Charges Work During Construction

You only pay interest on the amount drawn down, not the full approved loan amount. During the build, most lenders require interest-only repayments calculated on whatever portion of the loan has been released. If you've drawn $150,000 for the slab and frame, you're paying interest on $150,000, not the full $480,000.

Interest accrues from the day each progress payment is made. If your base stage is funded in March and your frame stage in May, you'll pay two months of interest on the base amount before the frame costs are added. These payments continue until the build is complete and the loan converts to a standard construction to permanent loan structure with principal and interest repayments.

Some lenders let you capitalise the interest during construction, which means adding it to the loan balance rather than paying it monthly. That keeps your cash flow intact while the build is underway, but it increases the total amount you'll owe once construction finishes. For someone building in Ocean Grove while renting elsewhere, capitalising interest might make sense. For someone who's sold their existing home and moved in with family temporarily, paying the interest monthly might be more cost-effective long term.

What's Included in a Progress Payment Schedule?

Your builder provides a progress payment schedule that breaks the contract price into stages, usually five or six instalments tied to specific milestones. The lender funds each stage once their valuer confirms the work is complete to that point. The schedule typically includes a deposit (often 5% to 10% of the contract price), then drawdowns at base, frame, lockup, fixing, and final completion.

The schedule must align with what the lender will release. Some builders front-load their payment schedule, asking for 15% at base stage when the work completed is only worth 10%. If the valuer assesses the stage at a lower value than the builder is claiming, the lender won't release the full amount, and you're left covering the shortfall out of pocket until the next stage.

In Ocean Grove, where building activity has been strong around the northern growth areas and infill sites closer to the town centre, it's common to see fixed price contracts from volume builders with standardised payment schedules. These tend to match lender expectations without much friction. Custom builds or cost-plus contracts require more negotiation, and the progress payment finance structure needs to be agreed with the lender before construction starts.

Do All Lenders Charge the Same Fees?

No. Some lenders charge no progressive drawing fees at all. Others charge per inspection but cap the total. A handful charge a flat fee upfront to cover all progress inspections, which can work out cheaper if your build has more than the usual five stages.

Application fees range from zero to around $600. Valuation fees are usually between $200 and $600 depending on whether it's a straightforward house and land package or a custom design requiring more detailed assessment. Some lenders also charge a settlement fee when the construction loan converts to the ongoing home loan, typically $150 to $300.

Accessing construction loan options from banks and lenders across Australia means you can compare not just rates but the full fee structure. For someone in Ocean Grove building a $550,000 home, the difference between a lender charging $300 per drawdown and one charging nothing could be $1,800 over six stages. That's real money, especially when you're also managing council approval costs, development application fees, and the inevitable budget for extras that weren't in the original fixed price building contract.

Are There Fees Beyond What the Lender Charges?

Yes. You'll pay for council plans, the building permit, soil tests, and often a separate surveyor to peg out the site. If you're building on a sloping block near the golf course or on a smaller infill lot where access is tight, you might also need engineer reports or additional site works that aren't covered in the base building contract.

These aren't loan fees, but they come out of the same savings pool you're using to cover the deposit and the lender's charges. For a typical build in Ocean Grove, expect $5,000 to $10,000 in non-lender costs before construction begins. If you're using an owner builder structure, which some lenders will finance under strict conditions, those costs increase because you're coordinating trades, inspections, and compliance yourself.

If you're planning a renovation rather than a new build, a home improvement loan can work similarly but with fewer stages and sometimes lower fees, depending on the scope of works and whether you need council approval.

When Do You Pay Each Fee?

Application and valuation fees are due upfront, usually within a few days of lodging your construction loan application. Progressive drawing fees are deducted from each drawdown as it's released, so they come out of the loan funds rather than your own cash. If the builder invoices $100,000 for the frame stage and the lender charges a $300 drawing fee, the builder receives $99,700 and the fee is charged to your loan account.

Settlement fees, if applicable, are charged when the loan converts from construction to the ongoing home loan, usually within a few weeks of practical completion. Some lenders roll this into the loan balance automatically. Others require payment by direct debit.

If you're refinancing an existing property to fund a new build, the timing of these fees overlaps with the discharge and establishment costs on the refinance itself. That can mean several thousand dollars in fees concentrated in a short window, so it's worth mapping out the cash flow before you commit.

How Do You Reduce Construction Loan Fees?

Choose a lender with low or zero progressive drawing fees if you're building a home with multiple stages. That's the single biggest variable cost in most construction loan fee structures. Ask whether the lender caps fees or offers a flat-rate option.

Negotiate with your builder to align the progress payment schedule with standard lender expectations. If the builder's schedule is front-loaded or includes more stages than necessary, it creates valuation mismatches and can trigger extra inspections, which means extra fees.

Consider whether you need the full loan amount approved from day one or whether you can structure the land purchase and construction funding separately. Some buyers in Ocean Grove purchase the land with a standard home loan, then apply for construction funding once the land settles and they're closer to breaking ground. That avoids paying interest on the land component during the pre-construction period, though it does mean going through the application process twice.

If you're building a custom home or using a builder who's less familiar to lenders, expect the valuation process to be more detailed and potentially more expensive. Volume builders working from standard plans tend to have smoother, cheaper valuations because the lender has seen the same floor plan dozens of times.

Kardinia Finance works with Ocean Grove residents to structure construction funding in a way that fits the build timeline, the builder's payment schedule, and the borrower's cash flow. Call one of our team or book an appointment at a time that works for you.

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