As a public health dentist considering building your own practice or undertaking major home renovations, understanding construction loan fees is crucial for making informed financial decisions. Construction loans differ significantly from traditional home loans, particularly in their fee structure and payment mechanisms.
Understanding Construction Loan Fee Structure
Construction loans operate on a progressive drawdown system, where you only charge interest on the amount drawn down at various stages of the project. This unique structure creates specific fee obligations that differ from standard mortgage arrangements.
Key fee components include:
• Progressive Drawing Fees - charged each time funds are released
• Valuation fees for 'as if complete' assessments
• Application and establishment fees
• Building inspection costs
• Legal and documentation fees
The Progressive Drawing Fee typically ranges from $300 to $500 per drawdown, making it essential to minimise the number of payment stages in your Progressive Payment Schedule.
How Progressive Drawdowns Work
When applying for a loan through a Finance & Mortgage Broker, you'll discover that construction loans operate through instalments tied to construction milestones. These progress payments align with specific project phases:
- Land purchase or deposit
- Slab and foundation completion
- Frame and roof installation
- Lock-up stage (walls and windows)
- Fixing stage (plumbing, electrical)
- Final completion
Each stage requires inspection and approval before funds release, generating additional costs for professional assessments.
Interest Rate Considerations
Construction loan interest rates typically sit higher than standard home loan rates, reflecting the increased risk profile. However, the interest-only repayment options during the construction phase help manage cash flow.
During construction, you'll pay:
• Interest only on drawn amounts
• No principal repayments until completion
• Higher variable rates compared to established property loans
Once construction completes, most lenders automatically convert the facility to a standard home loan with improved interest rate terms.
Additional Cost Factors
Beyond standard loan fees, construction projects involve numerous additional expenses that impact your total loan amount requirements:
Professional Services:
• Council plans and permits
• Development application fees
• Registered builder contracts
• Payments to plumbers and electricians
• Surveying and engineering reports
Project Variables:
• Out of Contract Items not included in fixed price contracts
• Council restrictions and compliance costs
• Site preparation for suitable land
• Connection fees for utilities
Timing Requirements and Penalties
Most construction loans require you to commence building within a set period from the Disclosure Date, typically 6-12 months. Failure to meet this timeline may result in:
• Loan cancellation
• Re-application requirements
• Additional establishment fees
• Updated valuations and documentation
This makes it essential to make a plan that accounts for council regulations, permit processing times, and contractor availability.
Choosing Your Construction Path
Different construction approaches carry varying fee implications:
New Build Projects:
Building on suitable land or choosing to demolish existing property requires comprehensive planning and higher initial costs but offers complete customisation.
House & Land Packages:
These streamlined options often reduce documentation fees and approval timeframes, though customisation options may be limited.
Buying Off the Plan:
Developer projects typically involve simpler fee structures but less control over construction timing and specifications.
Working with Mortgage Brokers
A qualified Finance & Mortgage Broker can access Construction Loan options from banks and lenders across Australia, helping you:
• Compare fee structures across multiple lenders
• Structure drawdown schedules to minimise costs
• Understand the full cost implications of your project
• Coordinate timing between pre-approval and construction commencement
Brokers familiar with dental professionals understand the unique financial position of public health dentists, including employment stability factors that can influence loan approval and terms.
Planning Your Construction Budget
Successful construction loan management requires comprehensive budgeting that extends beyond the basic loan amount. Consider these factors when determining your ideal location and price range:
• Total project costs including all fees
• Buffer amounts for cost overruns
• Professional service costs
• Temporary accommodation if required
• Income impacts during any practice transition
The streamlined application process available through experienced brokers helps ensure all cost factors are properly considered during the initial assessment phase.
Construction loans represent a powerful tool for public health dentists seeking to build their ideal practice or family home. However, the fee structure requires careful consideration and professional guidance to optimise your financial position throughout the construction journey.
Call one of our team or book an appointment at a time that works for you to discuss how construction loan fees impact your specific project requirements.
