The Easiest Way to Understand Construction Loan Fees

What Makes Construction Loan Fees Different

Construction loans charge interest only on the amount drawn down at each stage, not on the full loan amount from day one. This structure means your fees accumulate progressively as the build advances through inspections and progress payments to your registered builder.

The progressive drawing fee is the core cost that separates construction finance from standard home loans. Each time your lender releases funds to your builder following a progress inspection, they charge a fee for processing that drawdown. These fees typically range from $150 to $400 per progress payment, and most builds involve five to seven separate drawdowns from site preparation through to final completion.

Consider a Defence member posted to Puckapunyal building on suitable land nearby. Their fixed price building contract totals $480,000 with a progress payment schedule spanning six stages. At $300 per progressive drawing fee, they'll pay $1,800 in drawdown costs alone. Add the initial application and valuation fees similar to any mortgage, plus ongoing interest charges that start small and build with each payment, and the total fee picture differs substantially from what they'd face buying an established property.

Application and Valuation Costs Upfront

Most lenders charge between $600 and $1,200 to assess your construction loan application. The valuation differs from established property because the valuer inspects the land and reviews council plans and building specifications to determine the completed value. Expect to pay $300 to $600 for this specialised assessment.

These upfront costs apply whether you're building a custom design or selecting one of the house & land packages common around bases like Edinburgh or Townsville. The valuer needs approved development application documents and a fixed price contract before they can determine whether the finished home will support the loan amount you're requesting.

How Progressive Drawdown Fees Work

Your builder submits a claim at each stage completion, from foundation pour through frame erection to lock-up and final handover. The lender arranges a progress inspection to verify the work matches the claim, then releases funds directly to the builder minus any previous stage payments. Each of these releases triggers the progressive drawing fee.

In our experience, Defence members building while deployed find the inspection timing critical. If you're at sea or on exercise when the builder completes the frame stage, the inspection still needs to happen before funds release. Any delay in that inspection delays your builder's payment, which can create tension in the progress payment schedule. Setting up authority for someone local to liaise with the lender during your absence keeps the construction funding flowing without hold-ups.

Interest Charges During Construction

You pay interest monthly on whatever portion of the loan has been drawn down. After the first payment of $100,000 for site costs and slab, you're paying interest on $100,000. Once the frame is up and another $120,000 is released, interest accrues on $220,000. This progressive structure means your interest costs start low and climb as the build advances.

Interest-only repayment options are standard during construction, which keeps your outgoings lower until the home is finished and you convert to the construction to permanent loan phase with principal and interest repayments. At current variable rates, interest on the first drawdown might be $400 per month, rising to around $2,000 monthly by the time the build reaches lock-up stage.

Settlement and Conversion Charges

Once your builder achieves practical completion and you've conducted the final inspection, the loan converts from construction phase to standard mortgage. Some lenders charge a settlement fee at this point, typically $300 to $800, to finalise the documentation and shift you from interest-only to principal and interest repayments.

This conversion is when your construction loans for ADF members shift into a standard home loan structure. The interest rate may change if you were on a construction-specific rate during the build, and you'll start repaying both principal and interest rather than interest-only instalments.

Owner Builder Finance and Additional Costs

If you're managing the build yourself using owner builder finance rather than engaging a registered builder, expect higher fees and stricter drawdown conditions. Lenders view owner builders as higher risk because you're coordinating trades rather than relying on a licensed builder with insurance and warranties.

Drawdown requests require more detailed invoicing from plumbers, electricians, and other sub-contractors. Inspection fees often run higher because the lender needs greater certainty that each stage meets building standards before releasing funds. Budget an extra $500 to $1,000 in total fees compared to using a registered builder under a fixed price contract.

Land and Construction Package Fee Structures

Purchasing a land and build loan as a single transaction can reduce some duplicate costs. You'll still pay application and valuation fees, but you avoid separate settlement costs for the land purchase and construction loan by bundling them into one approval.

House & land packages offered by volume builders often come with streamlined documentation because the builder and developer work together regularly. Your lender may offer slightly lower progressive drawing fees when dealing with known builders who submit clean claims and meet inspection requirements consistently. Any reduction is modest, perhaps $50 per drawdown, but across six or seven payments it adds up.

What Cost Plus Contracts Mean for Fees

Some custom builders work on cost plus contracts where you pay actual costs plus a builder's margin, rather than a fixed price. Lenders treat these arrangements cautiously because the final loan amount isn't locked in at approval. Expect higher scrutiny at each progress payment and potentially larger progressive drawing fees to cover the extra verification work.

Most Defence members building a new home find fixed price building contracts more compatible with low deposit loans for ADF members or no LMI loans for ADF members. The certainty around final cost makes lender approval more straightforward and keeps fee structures predictable.

Timing Requirements and Penalty Fees

Most construction loan approvals require you to commence building within a set period from the disclosure date, typically six to twelve months. If you delay beyond that window, the lender may require a new application and fresh valuation, doubling your upfront costs.

Council approval delays are the common culprit. If your development application sits with the local council for eight months and your loan approval expires before you can start, you're back to the beginning with another round of fees. Planning around posting cycles and deployment schedules matters because you need to be available to sign builder contracts and manage council liaison during the approval period.

Renovation Finance Fee Differences

A house renovation loan for significant structural work uses similar progressive drawdown principles but with different risk assessment. If you're buying an established property and immediately undertaking major renovations, the lender needs both a current valuation and a post-renovation valuation.

Expect to pay for two valuations upfront, around $600 to $1,000 combined, plus the same progressive drawing fees as new construction. The advantage is you're living in the property during minor works, which eliminates the need to pay rent elsewhere while interest accrues on construction funding.

Call one of our team or book an appointment at a time that works for you. We'll map out the fee structure for your specific build scenario and identify which lenders offer the lowest progressive drawing fees for the construction type you're planning, whether that's building a custom home near your current base or setting up your first investment property under a house and land package.

Frequently Asked Questions