How to use your construction loan

To use your construction loan, you’ll need to request ANZ to make ‘progress payments’ to your builder. Here’s some information to help you understand what progress payments are, how they’re paid, and how to request them.

What are progress payments?

As your build is completed, you can access the money in your construction loan through progress payments. You’ll need to request ANZ to make these payments to you or your builder in line with the ‘progress payment schedule’ in your fixed price building contract.

What are the benefits of progress payments?

With a construction loan, there are a number of benefits to using progress payments. These include:

• Only paying interest on the progress payment amounts you use.
• Not paying interest on the full loan amount until the project is completed and all progress payments have been made.
• Saving you interest during the build as compared to receiving all of the funds in a lump sum upfront.
• Helping to keep the building project and financing on track.

Once the project has finished, your repayments will switch to principal and interest like a regular home loan (unless a longer interest only term was agreed on application).

Progress payment schedule

You’ll need to request progress payments at the completion of each stage of your build as outlined in your progress payment schedule contained in your fixed price building contract.

Here are the typical stages of a build:

Base

The site is prepared and the foundations are laid.

Frame

The 'skeleton' of the home is constructed including the internal and external frames.

Lock-up

The roof, doors, windows and walls are finished so the property is lockable.

Fixing

All the internal fixtures are completed including plastering, plumbing and electrical work.

Completion

The final fittings are completed including flooring, light fittings and painting.

What do you need to do to make progress payments?

ANZ’s Construction Loan Checklist (PDF) outlines the documents that you’ll need to provide to ANZ at each stage of the build for us to make a progress payment to your builder. These include:

Progress Payment Instruction Form

You’ll need to email ANZ your completed ‘Progress Payment Instruction Form’ (PDF) at the completion of each stage of the build. If you’re using your savings to pay for part of the build, you’ll usually need to pay the builder first before you can request for any progress payments to be made. Talk to an ANZ home loan specialist to understand when you can contribute your savings to the build.

Builder’s invoice

Along with your Progress Payment Instruction Form, you’ll need to attach a copy of your builder’s invoice for us to be able to make a progress payment for that particular stage.

If you’ve paid the builder with your own funds instead of using your loan, you’ll need to provide ANZ with your receipt so we can reimburse you for the amount listed on your progress payment schedule.

Progress inspections

ANZ will let you know if we need to arrange any ‘progress inspections’ to make sure your build is on track before we make a progress payment to your builder.

How are payments made?

You can choose your payment method on the Progress Payment Instruction Form. Usually, a progress payment will be made to your builder’s account or to your account if you’ve paid the builder directly. You can also request a cheque.

It’s a good idea to send your progress payment request as soon as you have all your documents ready so we can organise payment to your builder in line with their payment terms.

What if things change?

Sometimes there are unexpected costs or changes during the construction period, which may include:

Changes to your contract

If there are any ‘variations’ to your fixed price building contract before or during the build, talk to an ANZ home loan specialist as changes to your build may affect the cost or value of your new home.

Shortfall

If there is a cost overrun, you’ll need to cover the difference between the amount on your invoice and the progress payment schedule, known as the ‘shortfall’, from your savings. Once you’ve covered the shortfall, you can request a progress payment for the amount listed on your schedule. If you don’t have the funds to do this, an ANZ home loan specialist can discuss your options with you.

Finishing the project

Before we can make the final progress payment to your builder, we’ll arrange for a final valuation to work out the value of your new home. You’ll also need to provide us with your Building Insurance Policy and potentially other documents as required by your state, before the final progress payment is able to be made.

After final payment

Remaining funds

There may be funds left over in your construction loan after ANZ has made the final progress payment to your builder. If so, ANZ will be in touch with you to confirm your options about how you can receive this.

Switching from interest only to principal and interest

Once construction is completed, your loan will switch to principal and interest repayments unless a longer interest only term has been agreed when you applied for your loan. Your loan will revert back to a regular home loan once your project has finished.

To sum up

• To use your construction loan, a series of ‘progress payments’ are released to your builder.
• Progress payments are made according to a ‘payment schedule’ at the completion of each stage of your build.
• During the build, you only pay interest on the amount you have used to date so you save on interest as compared to receiving all of the funds in a lump sum upfront.
• Once your project is completed, the loan will revert back to a regular home loan.

Ready for the next steps?

Find out how ANZ can help you build a house or renovate your existing home.