What happens at the end of a construction loan?

The builder claims the final stage, the lender inspects and confirms practical completion, and the lender pays the builder. Lenders usually require the occupancy certificate or final certification, evidence of builder's insurance for the warranty period, and sometimes a final valuation confirming the on-completion value. Any retention held back for defects is released per the contract. Variations agreed late in the build must have been approved to be funded in the final draw.

The construction facility becomes a standard loan. If interest only was approved for the build only, repayments switch to principal and interest over the original term less the construction period, which means the loan is repaid over 28 or 29 years rather than 30 and the repayment is correspondingly higher. If the borrower wants a further interest only period, that is a new request. The rate moves to the approved product rate if a construction rate applied.

Construction lenders are chosen for their construction process, not always for their ongoing rate. Once the home is complete and valued, the borrower can refinance to any lender as a standard purchase-equivalent, often at a lower rate and sometimes releasing equity if the finished value exceeds cost. There is no early refinance concern because the construction loan was designed to be replaced, though any fixed rate or cashback clawback still applies.

Landscaping, driveways and fencing not in the contract have to be funded by you. Council and certifier final sign-offs must be complete. Home and contents insurance replaces the builder's contract works cover. And if the build was for an investment, the lease and rent start now, and the interest becomes deductible against that income.