Construction loans: how progress payments work
A construction loan pays your builder in stages as the work is completed, and you pay interest only on the amount drawn so far. Most lenders let you pay interest only during the build and switch to principal and interest when the home is finished.
This page explains the stages and progress payments, what you need to apply, how first home buyer grants and the 5% Deposit Scheme apply to new builds, and which lenders we review offer construction loans. For what a new house costs to build on the ABS's figures, see is $400,000 enough to build a house?
By Better Rate Mate Editorial Team · Last reviewed
General information only. It doesn't take into account your objectives, financial situation or needs. Check the lender's key facts sheet, credit guide and TMD before you apply. We don't compare every lender, and we may earn a commission if you apply through our links.
How a construction loan works
If you are buying land separately, you usually settle the land first, then the lender approves a construction loan against your building contract. When each stage is complete, the builder invoices you, the lender may inspect or value the work, and then it pays the builder. Bankwest describes its construction loan as a variable loan where money is released in progress payments so you only pay for completed work, with interest-only repayments until construction finishes and all progress payments are made.
Progress payment stages
Building contracts set out the stages and how much is paid at each. In Victoria the law caps the deposit and sets the usual stage percentages; other states have their own rules, so check your state's consumer affairs or building regulator.
| Stage | What's complete | Payment (% of contract price) |
|---|---|---|
| Deposit | Contract signed | Maximum 5% (10% for contracts under $20,000) |
| Base | Depends on floor type, e.g. concrete floor complete, or stumps and piers complete | 10% |
| Frame | Frame complete and approved by a building surveyor | 15% |
| Lock-up | External cladding and roof fixed, flooring laid, external doors and windows fixed | 35% |
| Fixing | Internal cladding, doors, skirting, cabinets, baths, basins and sinks fitted | 25% |
| Completion | Work complete | The balance |
Progress payment rules in NSW and Queensland
Both states cap the deposit a builder can ask for and tie progress payments to work actually done, which protects you and your lender if the builder fails. In NSW the deposit can't exceed 10% of the contract price; in Queensland it is 5% for work over $20,000.
| NSW | Queensland | |
|---|---|---|
| Maximum deposit | 10% of the contract price | 5% for work over $20,000; 10% for $3,301 to $19,999; up to 20% only where most of the work is prefabricated off site |
| Progress payments | For contracts over $20,000, either fixed payments after specified stages are completed, or payments as work is done and costs are incurred, backed by invoices | Timing is negotiated, but payments must match the work completed: for example, no more than 50% of the price, including the deposit, until at least 50% of the work on site is done |
| Before you pay | For work over $20,000, see and check the builder's Home Building Compensation certificate before paying the deposit | Don't pay more than the legal deposit or pay ahead of the schedule, or you can reduce your Queensland Home Warranty Scheme protection |
What you need to apply
Lenders assess the finished home's value and your ability to repay the full loan, so they need the build details up front.
- A signed fixed-price building contract with a licensed builder
- Council-approved plans and specifications
- The builder's details, licence and home warranty insurance where required
- A quote for any work outside the contract (landscaping, driveways) you want financed
- Your usual income, expense and ID documents
Grants and the 5% Deposit Scheme for new builds
Most state first home owner grants are for new homes, which makes them relevant to building. For example: Queensland's grant is $30,000 for new homes valued under $750,000, the Northern Territory's HomeGrown Territory Grant is $50,000, and Tasmania's grant is $20,000 for transactions from 1 July 2026 to 30 June 2027. See our first home buyer page for every state.
The 5% Deposit Scheme covers building on vacant land with a building contract: the land and build costs together must be under the price cap, and the loan term can be up to 30 years plus up to 3 years to build, which may include interest-only payments.
Knock-down rebuilds, renovations and land loans
Construction loans aren't only for new homes on vacant land. ANZ says its construction loan can fund a new build, a knock-down and rebuild, or a major structural renovation such as moving walls, adding a room or changing the roofline, and CommBank's covers knock-down rebuilds, major renovations and prefabricated homes built off site up to $1.5 million.
If you're buying the land first, you may need a separate land loan; ANZ says that if your land loan is already with it, you may be able to add the construction funds to it or keep the two loans separate. If you're an owner-builder, ask lenders directly: ANZ's and CommBank's construction loan pages describe lending against a builder's fixed-price contract.
Lenders we review that offer construction loans
ANZ: interest-only repayments are set automatically during construction for up to 24 months or until the build is finished, and it lists a $0 progress payment fee. CommBank: construction must start within 12 months of the disclosure date on your loan contract and finish within 24 months of the first progress payment, with interest only on the amount drawn. Bankwest: no progress payment fees in its $395 Complete package, against $80 per payment on its Simple loan. Westpac lists a construction option on its loans, and Athena offers specialist construction loans. CommBank's Digi and Simple loans exclude construction, and Unloan doesn't offer construction loans at all.
General information only. It doesn't take into account your objectives, financial situation or needs. Check the lender's key facts sheet, credit guide and TMD before you apply. We don't compare every lender, and we may earn a commission if you apply through our links.
What to watch for
- Cost overruns and variations: the lender lends against the contract, so extras may need your own cash.
- Paying a stage before it's complete. Consumer Affairs Victoria warns home warranty insurance may not cover work paid for in advance.
- Progress payment or inspection fees on each draw.
- Interest-only during the build, then a jump to principal and interest.
- Rent or another mortgage while you build: budget for both.
Common questions
How does a construction loan work?
The lender pays your builder in stages as each part of the build is completed, and you pay interest only on the amount drawn so far. Many lenders allow interest-only repayments until the home is finished.
What are the progress payment stages?
Usually deposit, base, frame, lock-up, fixing and completion. In Victoria, a contract to build all stages usually pays 10% at base, 15% at frame, 35% at lock-up and 25% at fixing, with the deposit capped at 5% for contracts of $20,000 or more.
Can I use the 5% Deposit Scheme to build?
Yes. Buying vacant land with a building contract is eligible if the land and build costs together are under the price cap. The loan can run up to 30 years plus up to 3 years to build.
Do I get the first home owner grant if I build?
In most states, yes, if you meet the conditions, because grants are aimed at new homes. Amounts range from $10,000 (NSW, Victoria, WA) to $50,000 in the NT, and SA has no value cap.
Which is better, a home loan or a construction loan?
It depends on what you're buying. A standard home loan pays for an existing home in one amount at settlement. A construction loan releases money in stages as a new build or major renovation progresses, and you pay interest only on what has been drawn, usually interest-only until the build is finished. If you're building, you need a construction loan, or a lender that converts one into a standard loan at completion.
How much deposit can a builder ask for?
It's capped by state law. In NSW the deposit can't exceed 10% of the contract price. In Queensland it is 5% for work over $20,000. In Victoria it is 5% for contracts of $20,000 or more (10% below that).
Which lenders do construction loans?
Among the lenders we review: Bankwest, ANZ, Westpac, Athena (specialist) and CommBank's Standard Variable Rate loan. Unloan and CommBank's Digi and Simple loans don't.
About rates on this page
We don't quote lenders' interest rates: they change daily and with every RBA decision, and we don't have a live rate feed. The averages we quote are the RBA's published figures for the month shown. Always get the lender's key facts sheet, which shows the rate and comparison rate for your loan amount.