A construction loan is not paid out in one lump sum, it’s released in stages as the build actually progresses, and you generally pay interest only on the amount drawn so far, not the full approved facility.
The typical progress stages
| Stage | What it covers | Roughly what portion of the build |
|---|---|---|
| Base / slab | Footings and slab (or sub-floor) complete | ~10–15% |
| Frame | Frame erected and approved | ~15–20% |
| Lock-up | External walls, roof, windows and doors in place | ~35% |
| Fixing | Internal linings, cabinetry, fixtures installed | ~20% |
| Completion | Final inspection, certification and handover | Final balance |
Indicative proportions only, actual stage splits are set by your specific building contract, not a universal standard.
How a draw actually happens
At each stage, the builder submits a progress claim/invoice. Before releasing the corresponding funds, the lender typically requires confirmation the work is actually complete to that stage, sometimes a signed builder’s declaration, sometimes an independent inspection or valuer’s report, depending on the lender and loan size. Only once that’s satisfied does the payment go to the builder, not to you.
A worked example
On a $500,000 construction facility, if $150,000 has been drawn after the frame stage, interest is calculated on that $150,000, not the full $500,000, for as long as the loan is in construction-draw mode. This is a meaningful difference in holding cost compared with a standard loan drawn in full on day one, and it’s one reason construction loans are often structured as interest-only during the build, converting to standard principal-and-interest once the final draw is made.
Where it can go wrong
Variations to the build, a client-requested change, an unexpected site condition, a cost increase between contract signing and construction, can create a funding gap if the total build cost rises beyond the approved facility. This is one of the most common surprises in a construction project, and it’s worth budgeting a contingency rather than assuming the approved loan will always be exactly enough.
What to prepare
- A fixed-price building contract with a clear progress-payment schedule
- Council-approved plans and specifications
- Evidence of the land purchase/ownership position
- A contingency buffer for variations, separate from the approved loan amount
Next step: the full Construction Hub covers product features, timing and what to prepare in more depth; talk with KartikKumar before signing a building contract.