Construction loan rates work differently to standard home loans because you only pay interest on the funds drawn down at each stage of the build, not the full loan amount from day one.
As a dental technician working in labs or private practice, you might be considering building rather than buying established. The interest structure on construction funding reflects the staged nature of the project. Instead of receiving the full loan upfront, funds release progressively as your registered builder completes each phase. This means your interest charges grow gradually as more money gets drawn down, rather than starting at the maximum from settlement.
How Interest Charges Build During Construction
Interest on construction funding gets calculated daily on whatever amount has been released to that point. If your total facility is $600,000 and you've drawn down $150,000 for site preparation and slab, you're only charged interest on that $150,000 until the next progress payment releases.
Consider someone building a custom home with a $550,000 building contract plus $200,000 for land they already own. After the first three progress payments totalling $220,000, their monthly interest charge at current variable rates would be roughly $1,100 to $1,300, depending on their lender. Once the frame goes up and another $165,000 releases, that monthly interest cost increases to around $1,900 to $2,200. The interest obligation rises with each drawdown until the home reaches practical completion and the loan converts to standard principal and interest repayments.
Most lenders structure construction facilities as interest-only during the build phase, typically for 12 to 18 months. You're not reducing the principal during this period, just covering the interest as it accrues on whatever's been drawn.
Fixed Versus Variable Rates on Construction Facilities
Most construction facilities start on a variable rate during the building phase, then give you the option to fix all or part of the loan once construction completes and the facility converts to a standard home loan.
Locking in a fixed rate before construction finishes can be complicated because you don't know exactly when practical completion will occur. Delays with council approval, weather, or materials can push timelines out by months. If you fix a rate three months before an expected completion date and the build runs over, you might end up paying break costs or needing to revert to variable rates temporarily. Some lenders offer a rate lock facility closer to completion, but these often come with additional fees.
Once the build completes and your loan converts, you can split between fixed and variable portions just like any other home loan. That's when most people lock in certainty on part of their borrowing if rates suit their circumstances.
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Progressive Drawing Fees and How They Add Up
Lenders charge a fee each time they release funds to your builder, typically called a Progressive Drawing Fee or inspection fee. These usually sit between $250 and $400 per drawdown, and most builds involve five to six payments over the construction period.
Your builder submits a progress claim based on the stage reached, such as base complete, frame up, lock-up, or fixing stage. The lender arranges an inspection to verify the work matches the claim, then releases the funds. That inspection and administration process triggers the fee. Over a typical build with six progress payments, you're looking at $1,500 to $2,400 in total drawing fees on top of your interest costs.
Some lenders cap these fees or include a certain number of drawdowns without charge as part of their construction loan package. When comparing construction finance options, the drawing fee structure matters as much as the interest rate, particularly if your builder uses a detailed progress payment schedule with more frequent claims.
What Affects Your Construction Loan Interest Rate
Your rate gets determined by the same factors that influence standard home loan pricing, with a few construction-specific considerations layered on top. Lenders assess your deposit size, employment stability, and whether you're building on land you already own or purchasing through a land and construction package.
As a dental technician, your income structure affects how lenders view your application. If you're salaried through a lab or hospital, your serviceability assessment follows a standard process. If you operate as a contractor or run your own technical services business, lenders treat you similarly to self-employed borrowers, which can influence both your rate and the documentation required.
Owner-builder applications attract higher rates and more conservative lending policies because lenders see greater risk when you're coordinating trades yourself rather than using a registered builder with insurance and fixed price building contracts. The rate difference can be 0.3% to 0.8% higher than standard construction finance, and some lenders won't offer owner builder finance at all.
Land and Construction Packages Versus Building on Owned Land
If you're purchasing land and building simultaneously, your loan structure differs slightly from someone who already owns the site. With a land and build loan, the first drawdown covers the land purchase, then subsequent payments follow the building contract's progress payment schedule.
The land component usually settles before construction starts, which means you're paying interest on that portion from settlement day even though no physical building work has commenced. Some contracts require you to commence building within a set period from the land purchase, typically six to twelve months, which keeps the construction phase within the lender's initial approval timeframe.
Building on land you've owned for a while can sometimes give you more flexibility with timing and planning, particularly if you've had the council plans and development application sorted well in advance. Your deposit calculation also works differently because lenders use the land's current value rather than what you originally paid for it, which might give you more equity to work with if the land has increased in value.
Converting to Your Permanent Loan
Once your builder reaches practical completion and you receive the occupancy certificate from council, your construction facility converts to a standard home loan. This is when your interest-only period ends and you start making principal and interest repayments based on the full loan amount.
The conversion happens automatically with most lenders, though some require you to complete a new application or provide updated income verification. Your interest rate typically stays the same during conversion unless you specifically request to change rate types or split your borrowing. If rates have moved significantly since you started construction, you might want to review your options at this point rather than just rolling into whatever structure was originally approved.
This is also when you can properly compare your rate against current market offers and consider refinancing if another lender provides better terms. Some people who started construction on a variable rate during the building phase will lock in a fixed portion at conversion to balance their rate exposure going forward.
What Dental Technicians Should Consider
Your profession sits in a solid position for construction lending, particularly if you're in stable employment with established labs or practices. Lenders recognise the qualification pathway and income stability in dental technology roles, which can help when serviceability gets assessed on a loan that might be 10% to 15% larger than buying established because you're funding the full build cost.
If you're working towards building your custom home while renting or living with family, make sure your savings history clearly shows you can manage the interest-only payments during construction on top of your current accommodation costs. Lenders want to see you've been setting aside an amount similar to what those construction-phase interest payments will be, even if the total is less than a full principal and interest payment would eventually become.
Some dental technicians operate technical consulting services or provide specialist prosthetic work on a contract basis. If that describes your situation, expect lenders to assess your application using self-employed criteria, which typically means providing tax returns and business financials rather than just payslips. This doesn't prevent you from accessing construction finance, but it does change the documentation process and potentially your rate depending on how your income presents.
Call one of our team or book an appointment at a time that works for you to discuss construction loan options that align with your building timeline and budget.
Frequently Asked Questions
How is interest calculated during the construction phase?
Interest gets calculated daily on whatever amount has been drawn down at that point, not the full loan amount. As your builder completes each stage and more funds release, your interest charges increase proportionally until the home reaches practical completion.
What are Progressive Drawing Fees?
These are fees charged by lenders each time they release funds to your builder, typically $250 to $400 per drawdown. Most builds involve five to six progress payments, so total drawing fees usually range from $1,500 to $2,400 across the construction period.
Can I fix my interest rate during construction?
Most construction facilities start on variable rates during the build, then allow you to fix all or part of the loan once construction completes. Fixing before completion can be problematic because delays might trigger break costs if your rate lock expires before practical completion.
Do owner builders get the same interest rates?
No, owner builder applications typically attract rates 0.3% to 0.8% higher than standard construction loans because lenders see greater risk when you're coordinating trades yourself. Some lenders don't offer owner builder finance at all.
What happens when construction finishes?
Once you receive the occupancy certificate, your construction facility converts to a standard home loan with principal and interest repayments. Your rate typically stays the same unless you request changes, and this is when you can properly review your loan structure or consider refinancing.
