Camden Professionals

Construction Loans: The Basics Explained

Construction loans are a specialised type of financing designed for building new homes, renovating properties, or making large-scale additions. Unlike traditional home loans, construction loans are released in stages as the project progresses.

Whether you’re an owner-builder or working with a licensed construction company, understanding how construction loans work is key to a successful project.

What is a Construction Loan?

A construction loan is short-term financing used to fund the building or major renovation of a property. It’s different from a standard mortgage in several ways:

Funds are disbursed in stages (called “draws”) as construction progresses, not in a lump sum.
Interest is only charged on the amount drawn, not the full loan value.
Once the project is complete, the loan is either paid off or converted into a standard home loan (also known as permanent financing).

Types of Construction Loans

Construction-to-Permanent Loan
- One loan covers both the construction and the mortgage.
- Converts automatically into a home loan when construction is complete.
Construction-Only Loan (Standalone Loan)
- Covers only the building phase.
- Must be repaid or refinanced into a mortgage after the project ends.
- Often comes with higher interest rates and stricter approval requirements.
Renovation Loan
- For major upgrades to existing homes.
- Funds are released in stages and used similarly to a construction loan.

How Construction Loans Work

Application and Approval Process

To apply, you’ll need:

Detailed building plans
A fixed-price contract with a licensed builder
Construction schedule and budget
Council permits and insurance documents

The lender will assess:

Your credit history, income, debts, and assets
The builder’s qualifications
The feasibility of the construction project

Draw Schedule and Fund Disbursement

Funds are released in stages aligned with construction milestones (e.g., slab, frame, lock-up, fit-out, completion). Before each draw:

The builder submits an invoice.
A third-party inspection confirms the work is complete.
If approved, the lender releases the next payment.

Interest Payments

During construction, you only pay interest on the funds drawn—not the total loan amount. These payments are usually made monthly.

Once construction is finished:

The loan is either repaid or refinanced into a long-term mortgage with principal and interest repayments.

Eligibility Requirements

To qualify for a construction loan, lenders typically require:

Strong credit score and stable income
At least a 20% deposit or equity contribution
A licensed builder with relevant permits and insurance
A realistic budget and timeline

Key Benefits of Construction Loans

Customisation: Build your dream home from the ground up, with full control over design and layout.
Interest Savings: Pay interest only on the amount drawn down, not the full loan amount.
Flexible Financing: Payments align with project phases, giving better cash flow control during the build.

Risks and Challenges

Higher Costs: Interest rates and fees are usually higher than standard home loans.
Complex Approval Process: Requires detailed paperwork, planning, and lender scrutiny.
Potential for Delays and Budget Blowouts: Weather, material shortages, or changes in scope can delay the project or increase costs.

Tip: Always include a contingency budget (typically 10–15%) to handle unexpected expenses.

Final Thoughts

Construction loans offer flexibility and control when building or renovating, but they come with unique requirements and risks. A successful project depends on:

Careful planning
Choosing the right builder
Having financial buffers
Understanding loan terms and your obligations

If you’re considering a construction loan, speak with a mortgage broker or financial adviser to ensure it’s the right choice for your situation.

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How can we help?

If you have any questions or would like further information, please feel free to give our office on 08 9221 5522 or via email – info@camdenprofessionals.com.au or arrange a time for a meeting so we can discuss your requirements in more detail.

General Advice Warning

The material on this page and on this website has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained on this page and on this website is General Advice and does not take into account any person’s particular investment objectives, financial situation and particular needs.

Before making an investment decision based on this advice you should consider, with or without the assistance of a securities adviser, whether it is appropriate to your particular investment needs, objectives and financial circumstances. In addition, the examples provided on this page and on this website are for illustrative purposes only.

Although every effort has been made to verify the accuracy of the information contained on this page and on this website, Camden Professionals, its officers, representatives, employees, and agents disclaim all liability [except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained in this website or any loss or damage suffered by any person directly or indirectly through relying on this information.

Camden Professionals

Why Borrowers Are Turning to Non-Bank Lenders

In today’s fast-paced financial landscape, flexibility and speed often outweigh the traditional routes of securing a loan. For many borrowers, Non-Bank Lenders are becoming the go-to solution for funding needs across various sectors. Whether you’re navigating the complexities of property finance or seeking short-term business capital, Non-Bank Lenders offer distinct advantages that can make all the difference.

What is a Non-Bank Lender?

A Non-Bank Lender, also known as a private lender or alternative lender, is a financial institution that provides loans and other financial products outside the traditional banking system. Unlike banks, which are regulated depository institutions, Non-Bank Lenders do not hold banking licenses and do not offer services like savings accounts. Instead, they hold regulatory financial licenses that allow them to offer specialized lending products to borrowers who may have substantial assets to secure their loan but do not meet the strict criteria of traditional banks.

Non-Bank Lenders have become an essential part of the financial landscape, contributing to increased competition in the lending industry and offering borrowers greater choices when seeking financing options. As the market continues to evolve, they play a crucial role in addressing the diverse financial needs of borrowers and promoting financial inclusion for a wider range of individuals and businesses.

Top 5 Reasons Borrowers Use Non-Bank Lenders

Speedy Loan Approvals

Non-Bank Lenders are known for their fast, flexible, short-term loans and rapid loan approval processes. Unlike the often time-consuming processes at traditional banks, these lenders provide quick approvals, allowing borrowers to act swiftly in dynamic markets like real estate.

Flexibility

Non-Bank Lenders typically employ more flexible underwriting criteria compared to traditional banks. This makes financing more accessible to borrowers whose credit histories or financial situations may not meet standard banking requirements. This flexibility opens the door to more funding opportunities for various projects, enhancing business potential.

Tailored Lending Solutions

Non-Bank Lenders offer the advantage of tailored lending solutions. Recognizing that borrowers have unique financial objectives, these lenders craft bespoke loan products that align with the specific needs and preferences of borrowers and brokers alike. This enables borrowers to access the ideal financial tools to achieve their business goals.

Wide Range of Products

Specializing in unique products for various real estate and business projects, Non-Bank Lenders act quickly, helping borrowers secure funding when time is critical. Their extensive range of financial products allows borrowers to find the right fit for a wide variety of projects and investment opportunities.

Personalized Relationship Management

Non-Bank Lenders place a strong emphasis on building relationships with both brokers and direct borrowers. This personalized approach fosters open communication and helps lenders understand the specific goals and challenges of their clients. By offering tailored guidance and support, Non-Bank Lenders provide an enhanced lending experience.

Conclusion

The rise of Non-Bank Lenders has transformed the lending landscape, providing new opportunities for borrowers seeking finance. As the real estate and business markets continue to evolve, many borrowers are discovering that Non-Bank Lenders offer faster, more flexible, and tailored financing solutions compared to traditional banks. Their speed, personalized service, and wide range of products make them an appealing choice for those who need funding quickly and efficiently. Whether you’re looking for property finance or short-term business capital, turning to a Non-Bank Lender may be the right decision to meet your financial needs.

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What should I do when my fixed rate ends? Refinancing your home loan

Fixed interest terms on home loans don’t last forever, so it’s inevitable that you’ll have to decide what to do when yours ends. Do you want to opt for another fixed term? Switch to a variable interest rate? How about a split rate home loan? If your fixed term is ending soon, now is the time to review your home loan, and look for a better deal.

If you don’t do anything nearing the end of your fixed term, your home loan will usually revert to your lender’s standard variable rate. Variable rates after the fixed rate ends tend to be much higher than usual. This is because lenders know that some people won’t be bothered to switch lenders at this point meaning that you end up paying a loyalty tax.

At this point you can sit on this rate for however long you like, but you may be able to get a more competitive interest rate if you look into your lender’s other options or refinance with a new bank.

Your lender will usually allow you to refix your home loan, but you want to make sure that you’ll be locking in a competitive interest rate. If you’d like some interest rate stability but don’t like the idea of locking yourself into a rate for years, you could pick a 1-2 year fixed rate or even consider a split loan.

Alternatively, finding a low variable interest rate could be beneficial. Variable rate mortgages come with a lot of flexible advantages, including loan features and unlimited extra repayments.

Can you extend a fixed rate mortgage?

You are unlikely to be able to extend a fixed rate mortgage at its current set interest rate. However, you can definitely fix your home loan again at an up-to-date rate. While it’s typical to have a fixed rate period of 1-5 years, some lenders offer terms of up to 10 years for those who just prefer to set their home loan rate and not worry about it.

The main risk of having a long-fixed term is that you could miss out on interest rate cuts if the cash rate drops during your term. But, if interest rates rise, you’ll be protected from increases until your fixed term is over.

Another thing to remember is that fixing your interest rate isn’t a great idea if you plan to sell or renovate your home using equity from the property within the fixed period. Fixed rate mortgages also come with a lot of restrictions, meaning that you often can’t make unlimited extra repayments or utilise loan features like an offset account.

What is the penalty for breaking a fixed rate home loan?

If you don’t want to wait until your fixed term expires before you refinance or overpay on your home loan, you are likely to incur break costs. Break costs are charged by lenders when borrowers do something to ‘break’ their fixed rate loan terms, for example:

Refinancing/switching to a new home loan or lender
Paying off your home loan early
Making extra repayments that exceed any caps set by your lender
Selling your home during the fixed period (without loan portability)

Exactly how much you are charged will depend on your lender, loan amount and the state of the market. Typically break costs are calculated based on:

The amount of time left in the fixed term
The difference between the lender’s cost of funds now versus when the loan was initially settled
If you’re thinking about breaking your fixed rate home loan, speak to your lender about how much you could be charged in break fees to see if it will be worth it.

If you have a variable rate home loan, you won’t be charged break fees for doing these things. Try to plan ahead and think of what interest rate type would best suit your circumstances, or even consider a split rate mortgage.

Switching to a variable interest rate after your fixed term ends

After your fixed period ends, you should have a good idea of how fixed rate mortgages work and whether you would be happy proceeding with an additional fixed term. If you found your fixed rate home loan a bit constricting or you’d like to try something different, you could look into switching to a variable rate mortgage.

A variable rate mortgage will usually come with a lower interest rate, but this interest rate can and will fluctuate depending on the RBA cash rate and your lender’s financial situation. Some other features of a variable mortgage can include:

Access to more loan features such as offset accounts, redraw facilities and loan portability
Ability to make uncapped additional repayments
When the cash rate drops, your interest rate will likely also decrease (and vice versa)
Easier refinancing

Luckily, there are no penalties associated with refinancing from a variable rate. So, if you end up missing your fixed rate stability, you can switch back with little hassle. Alternatively, a split rate home loan is another option.

A split loan means that one portion of your loan balance has a fixed interest rate, while the other is on a variable interest rate. This way, you get the best of both worlds and the split doesn’t even have to be 50:50.

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If you aren’t sure how to proceed after your fixed period ends, it might be a good idea to chat with a mortgage broker to discuss your options. You can arrange a free 15 minute no obligation chat with our in-house mortgage broking team to discuss your options.

Please arrange an appointment with our office here.

https://www.camdenprofessionals.com.au/finance/

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How to avoid being rejected when you refinance

Want to refinance your mortgage but worried you’ll be rejected? At Camden Professionals Finance we have put together a list of factors you should consider. Why do some lenders reject applications to refinance mortgages?

Your credit score is too low

When you apply to refinance your loan, you’re essentially applying for a whole new mortgage. That means a lender will assess your loan application using the same criteria they would for other home loans. And one of the most important factors they’ll consider is your credit score.

Your credit score essentially marks you on how responsible you are with money and considers any credit infringements, judgements, or bankruptcies. All loans & repayments are now noted on your Credit file and affects the credit score if repayments have been missed.

It also looks at how often you’ve applied for credit and whether you’re meeting your credit card and personal loan repayments on time. Your credit score changes over time, so chances are yours will be different now to when you took out your current home loan. You should consult with your broker before applying for your new loan, if you believe that your credit score may affect your chances of refinancing.

If your credit score is holding you back, you can take steps to fix it yourself. That includes paying back any money you owe, making sure you meet your monthly repayments into the future and avoiding applying for credit other than your refinanced mortgage.

Your financial circumstances have changed

Whenever a lender assesses a loan application, they always consider your capacity to meet your loan repayments. This means looking at your income, including salary and bonuses as well as the money you receive from any investments. If you’re refinancing to buy an investment property a lender will factor in any likely rent, you’ll receive from this also.

If your income has dropped since you last applied for a home loan, you may not be able to borrow as much as last time – in which case, a lender may reject your refinance application.

If your circumstances have changed only temporarily – for instance, if you’re out of the workforce on parental leave or having a career break – you could give yourself a better chance of being approved by waiting until you return to work before you apply to refinance.

Alternatively, if your income has reduced permanently, you may be able to extend the terms of your loan to reduce your loan repayments. Because you’ll likely be better able to meet these repayments, this may also improve your chances of being approved.

Your living expenses are too high

Lenders won’t just look at what’s coming into your bank account – they’ll also consider what’s leaving it. If your living expenses are high, this will affect your ability to get a loan. Lenders will be especially concerned about any non-negotiables you need to pay for, including the cost of raising children. So, if you have more dependents than last time you applied for a loan, they’ll take this into account.

They’ll also assess what you’re spending on items such as childcare, ongoing rent, education, utilities, and entertainment. To avoid a refinancing rejection, it’s important that you live within your means and cut back on unnecessary expenses if you need to.

You have too much debt

For any lender, assessing what’s leaving your bank account involves more than simply assessing your living costs. They’ll also factor in any other credit you have access to, including personal loans and credit cards – even if you don’t owe anything on them.

To help avoid being rejected, you could close down any credit cards you’re not using. You may also choose to consolidate any personal loans or credit card debt into your refinanced home loan so that you don’t have other high-interest debt outside of your mortgage.

Your LVR is too high

One of the most important factors a lender will consider when you apply to refinance your home loan is your loan-to-value-ratio. LVR. If you’re refinancing to buy an investment property, your LVR will go up, as any equity you have in your home will now be used to secure two properties. If the market has dropped since your last application and you haven’t paid off much of the loan principal, your LVR may have risen too.

If the LVR on your refinance application is too high, a lender may reject your application or ask you to take out lenders mortgage insurance (LMI).

The importance of understanding the refinancing process

It is important to understand the refinancing process and have a good idea of how much you can afford to borrow. A mortgage broker can also help maximise your chances of being approved by helping you get your application in order and making sure you apply to the most appropriate lender for your circumstances.

You should contact our office and chat to our in-house finance team to find out how you could avoid being rejected when you are seeking to refinance.

EXCLUSIVE OFFER TO OUR READERS! Claim your free no obligation Finance/ Credit Health Check

You can arrange a free 15 minute no obligation chat with our in-house mortgage broker to discuss your options. We can also undertake a free check of your credit file.

Claim you Free, 15 Minute Financial Health check by completing our contact form here.https://www.camdenprofessionals.com.au/finance/

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PPSR – Personal Property Securities Register | Protecting your credit history

What is the PPSR ?

The PPSR is a national online register that provides searchable information on security interests held in personal property. Its role is to protect suppliers and lenders when a customer becomes insolvent by clarifying any confusion about ‘apparent ownership’ of goods or equipment.

The PPSR can also help ensure business owners are not sold goods with pre-existing security interests registered against them, which could see the same goods repossessed if the seller has outstanding debts.

Often, many SMEs have their first brush with the PPSR when trying to recover assets after a customer goes insolvent. If a SME has not correctly registered their interests, those assets could be lost. Similarly, if a customer can’t recover unregistered assets it can impact their cash flow and ability to pay their own suppliers, creating a ripple effect.

How to rank as a secured creditor in this increasingly volatile business environment

In an environment that is likely to have a heightened level of volatility, SMEs need to consider using PPSR’s and how that affects your business operations and what implications this has on selling your business and impacting on settlement. The Personal Property Securities Register or PPSR, is an official government register where one registers their security interest held in personal property.

In what can only become a highly volatile trading environment post March, understanding and using PPSR should be included in your day-to-day business repertoire. Business credit, Australia-wide, equates to a lending facility that would have resource classified as Australia’s fifth-largest bank. With that amount of lending through 30 or 60 day trading accounts there is an enormous amount of potential liability.

Registering a Security Interest

Registering a security interest over the goods or services allows you to protect assets in the event there is a default. Chiefly this security interest is to protect your business from the insolvency of your customers. The retention of title that the registration of a security interest entitles you will allow you to; recover unpaid goods, claim an interest in the product in which of goods have been added or act as a defence to having received an unfair preference.

The use of PPSR’s are becoming more prolific as people weigh up the small cost of registration against the potential loss of stock and services.

Acquiring a PPSR report to provide you with comprehensive breakdown of all the security interests that have been taken out against your company is a housekeeping job that should be scheduled into your operations throughout the year.

If you are considering taking your business to market, talk to one of our team members will step you through the complicated and often daunting task of selling your business whilst pointing out what you need to consider prior to undertaking this significant step in your life as a small business owner.

Source: Equifax

Feel free to contact our office if you would like any further information or for an obligation-free and confidential discussion if your business is experiencing financial difficulties or you would like to discuss restructuring options.

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SME Recovery Loan Scheme | Does your Business Qualify?

The Government’s SME Recovery Loan Scheme is designed to support the economic recovery, and to provide continued assistance, to firms currently on JobKeeper. The Government will work with lenders to ensure that eligible firms will have access to finance to maintain and grow their businesses when JobKeeper ends.

The Scheme is enhancing lenders’ ability to provide cheaper credit, allowing many otherwise viable SMEs to access vital additional funding to get through the impact of Coronavirus, recover and invest for the future.

The Scheme builds on the framework established in the two phases of the Coronavirus SME Guarantee Scheme, and is specifically targeted at SMEs currently receiving JobKeeper. The scheme is only open to recipients of the JobKeeper payment between 4 January 2021 and 28 March 2021.

Phase 2 of the existing SME Guarantee Scheme will remain open to eligible borrowers until 30 June 2021, and SMEs with Phase 1 or Phase 2 loans will be able to apply for loans in SME Recovery Loan Scheme.

Which businesses are eligible?

The scheme is only open to recipients of the JobKeeper payment between 4 January 2021 and 28 March 2021, specifically small and medium sized businesses with up to $250 million turnover. Both self‑employed individuals and non-profit businesses are eligible. Businesses that have accessed loans in Phase 1 and Phase 2 can also apply for loans under the scheme

Key Features

Participating lenders are offering guaranteed loans on the following terms under Phase 2:

The Government guarantee will be 80% of the loan amount.
Lenders are allowed to offer borrowers a repayment holiday of up to 24 months.
Loans can be used for a broad range of business purposes, including to support investment. Loans may be used to refinance any pre-existing debt of an eligible borrower, including those from the SME Guarantee Scheme.
Borrowers can access up to $5 million in total, in addition to the Phase 1 and Phase 2 loan limits.
Loans are for terms of up to 10 years, with an optional repayment holiday period.
Loans can be either unsecured or secured (excluding residential property).
The interest rate on loans will be determined by lenders, but will be capped at around 7.5 per cent, with some flexibility for interest rates on variable rate loans to increase if market interest rates rise over time.

Eligible Loan uses and Products

Lenders can offer any product suitable to the borrower, with the exception of credit cards, charge cards, debit cards or business cards. Loans issued under the Scheme may take any other form of credit, provided the Scheme’s eligibility criteria are met. Loans issued under the Scheme can be used to refinance existing loans or for a broad range of businesses purposes (including to support investment) but cannot be used to:

purchase residential property;
purchase financial products;
lend to an associated entity; or
lease, rent, hire or hire purchase existing assets that are more than half way into their effective life.

Loans may be used to refinance any pre-existing debt of an eligible borrower, including those from the SME Guarantee Scheme. There will be some restrictions on refinancing loans, such as not allowing loans that are more than 30 days in arrears to be refinanced; or borrowers who have entered external administration, or are insolvent, to refinance debts. Lenders can vary or restructure loans as long as they continue to meet eligibility criteria (including the maximum loan term) and do not increase the loan limit after approval.

Lenders must disclose the effective interest rate (including whether variable or fixed) to the borrower at the loan agreement date. For variable rate loans, the lender must disclose the relevant margin and underlying base rate where applicable. Loans can be used to purchase non-residential real property (such as commercial property) or for the acquisition of another business.

Lenders will be able to rely on a declaration from the borrower in regards to the purpose of the loan. For more information, you can download information here:

General Advice Warning

Although every effort has been made to verify the accuracy of the information contained on this page and on this website, Camden Professionals,its officers, representatives, employees, and agents disclaim all liability [except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained in this website or any loss or damage suffered by any person directly or indirectly through relying on this information.

Camden Professionals

JobKeeper Extension: What this means to business and employees

JobKeeper extension has been announced by the government. Payment for JobKeeper is now extended until 28 March 2021 for businesses and not-for-profit organisations severely affected by the COVID-19 pandemic.

The payment extension, however, will be reduced and paid at two rates. Test on eligibility will also be based on the turnover on relevant periods.

JobKeeper Extension Payment Rates

The two payment rates are based on the number of hours worked in the four weeks before 1 March 2020.

From 28 September 2020 to 3 January 2021 –
- $1,200 per fortnight (those worked 20 hours or more per week on average)
- $750 per fortnight (those who worked below 20 hours per week on average)
From 4 January to 28 March 2021 –
- $1,000 per fortnight (those worked 20 hours or more per week on average)
- $650 per fortnight (those who worked below 20 hours per week on average)

Business Eligibility

Business and organisations are eligible if they satisfy the decline in turnover test or if they have a reduced turnover of 30 per cent or 50 per cent depending on business size, and of 15 per cent for charities.

From 28 September to 3 January

To be eligible for the JobKeeper extension for the period 28 September 2020 to 3 January 2021, business, including self-employed and not-for-profit organisations, are required to meet the decline in turnover test in June and September quarters.

From 4 January to 28 March

To be eligible for the next year, business, including self-employed and not-for-profit organisations, are required to further reassess their eligibility for JobKeeper and demonstrate that they meet the decline in turnover test in June, September and December quarters.

JobKeeper Extension Impact on Employees

If you’re an employee, the JobKeeper extension means you’ll continue to receive JobKeeper payments until 28 March 2021, though at reduced rates.

Casual and part-time employees with work hours of 20 hours below will receive $750 per fortnight from 28 September 2020 to 3 January 2021, and $650 per fortnight for the March quarter next year.

Full-time employees are eligible to receive $1,200 per fortnight payment, which will be reduced to $1,000 per fortnight for the March quarter.

More information is available in the JobKeeper Payment extension fact sheet. You can also contact us if you have more questions. We’d be glad to assist you.

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Frequently Asked Questions

Construction Loans: The Basics Explained

Why Borrowers Are Turning to Non-Bank Lenders

What should I do when my fixed rate ends? Refinancing your home loan

How to avoid being rejected when you refinance

PPSR – Personal Property Securities Register | Protecting your credit history

What is the PPSR ?

How to rank as a secured creditor in this increasingly volatile business environment

Registering a Security Interest

SME Recovery Loan Scheme | Does your Business Qualify?

SME Recovery Loan Scheme | Does your Business Qualify?

JobKeeper Extension: What this means to business and employees