Most construction loans in Queensland involve five or six progress payments, but understanding how lenders release funds at each stage determines whether your build runs smoothly or hits cash flow problems halfway through.
When you arrange construction finance for a new home, you're not borrowing a lump sum on day one. The loan amount gets divided into instalments matched to specific building stages, and you only pay interest on what's been drawn down so far. This structure protects both you and the lender, but it also means your registered builder, plumbers, and electricians need to wait for inspections before they receive payment.
Progress Payment Finance and How Drawdowns Actually Happen
A standard construction loan releases funds in stages tied to physical milestones on site. Each drawdown requires a progress inspection by the lender's valuer, who confirms the work claimed by your builder has actually been completed to the required standard. Once the inspection clears, the lender releases that portion of the loan amount directly to your builder or into your account if you're managing an owner builder finance arrangement.
Consider someone building a custom design home in Greenbank on a 600 square metre block. Their $650,000 building loan might break into six payments: base stage at $100,000, frame stage at $150,000, lock-up at $130,000, fixing stage at $120,000, practical completion at $100,000, and final inspection at $50,000. Between each stage, they're only charged interest on the cumulative amount drawn. After the frame inspection, they're paying interest on $250,000, not the full $650,000.
Most lenders charge a Progressive Drawing Fee at each stage, typically between $200 and $400 per inspection. Some cap this at five payments regardless of how many draws you request, while others charge per inspection without limit. When comparing construction loan options from banks and lenders across Australia, the difference in these fees across six drawdowns can add up to $1,200 or more.
Fixed Price Building Contract vs Cost Plus: How the Structure Changes Your Loan
The way your construction funding is structured depends on whether you're working under a fixed price building contract or a cost plus contract. Under a fixed price contract, your builder quotes a total amount before work begins, and your loan is sized to cover that figure plus an allowance for council approval costs and any owner selections outside the base specification. The progress payment schedule is locked in at the start.
With a cost plus arrangement, you're covering the actual costs of materials and labour, plus a builder's margin. Lenders view this as higher risk because the final loan amount isn't confirmed until the build completes. You'll typically need a larger deposit, often 20% to 25%, and the lender will want detailed council plans and a comprehensive cost breakdown before approving the facility.
In our experience across areas like Forest Lake and Browns Plains, most project home builders work on fixed price contracts with a clear progress payment schedule. Custom builders may offer either structure depending on how much design freedom you want. The fixed price option gives you certainty around your loan amount and repayments, but less flexibility to adjust specifications once the contract is signed.
Construction to Permanent Loan: What Happens After Practical Completion
A construction to permanent loan converts from the building phase into a standard home loan once your new home reaches practical completion. During construction, you're usually on interest-only repayment options, paying only the interest charges on whatever portion of the loan has been drawn down. After you move in and the final inspection is complete, the loan converts to principal and interest repayments based on the full amount.
This conversion happens automatically with most lenders. You're not taking out a second loan or refinancing. The construction loan interest rate during the build may differ slightly from the ongoing rate after conversion, but you're dealing with one approval, one application, and one set of settlement costs. The alternative would be a standalone building loan that you'd need to refinance separately once construction finishes, adding another round of application costs and potential valuation risks if the market shifts.
Some lenders require you to commence building within a set period from the Disclosure Date, typically six or twelve months. If your land and construction package involves buying a block that's still being subdivided, or if council approval for your design takes longer than expected, you might need an extension or risk the loan approval lapsing. This timing issue comes up regularly with house and land packages in growth areas around Pallara and Heathwood, where land titles can take four to six months to register.
Land and Build Loan Scenarios: When You Already Own the Block
If you already own suitable land outright, a construction loan only needs to cover the building costs. You're not borrowing against a house that doesn't exist yet - you're using the land as security and drawing down funds to pay sub-contractors as the build progresses. Lenders assess your borrowing capacity based on the combined value of the land and the completed dwelling, not just the dirt.
As an example, someone owns a cleared block in Parkinson valued at $280,000 and wants to build a four-bedroom home for $520,000. The total project value is $800,000. If the lender requires an 80% loan-to-value ratio, they'll lend up to $640,000. Since the landowner isn't borrowing for the land itself, they'd access $520,000 for the build, with the land equity covering the deposit requirement. The construction draw schedule works the same way, releasing funds progressively, but there's no separate land loan to manage.
If you're still paying off the land, the structure gets more involved. You might refinance the existing land loan into a new facility that includes both the remaining land debt and the construction funding. Or you might keep the land loan separate and add a second facility for the build. The right approach depends on your current interest rate, how much equity sits in the land, and whether refinancing triggers any additional fees or break costs on the existing loan.
Interest Charges and the Cash Flow Reality During Construction
You only pay interest on the amount drawn down at each stage, but understanding how this affects your cash flow during the build matters more than people expect. In month one, after the base stage inspection, you might be paying interest on $100,000. By month four, after the lock-up stage, you're paying interest on $380,000. Your repayments increase every six to eight weeks as each stage completes.
If you're selling an existing home to fund part of the build, or if you're renting while construction happens, you're juggling interest payments on the growing loan balance alongside your other housing costs. Some borrowers arrange the construction loan with an offset account and park funds there to reduce interest during the build. Others set a budget assuming they'll be paying interest on the full loan amount from day one, treating any lower payments during construction as a buffer rather than savings to spend.
The construction loan application process involves demonstrating you can service the full loan amount once it's completely drawn, not just the first few stages. Lenders assess your income and expenses as though the entire facility is active. If your income drops or expenses rise mid-build, you're still committed to the progress payment finance structure already in place.
Building your custom home in Queensland involves more than picking a floor plan and signing a contract. The construction draw schedule controls when your builder gets paid, the interest-only structure keeps payments lower during the build, and the conversion to a permanent loan happens automatically once you move in. Understanding how progressive drawdown works and how different contract types affect your loan structure means you're prepared for the cash flow reality of paying for a home that doesn't exist yet.
Call one of our team or book an appointment at a time that works for you. We'll walk through your situation, explain how the draw schedule lines up with your builder's payment terms, and make sure your construction funding is set up properly before you break ground.
Frequently Asked Questions
How many progress payments are typically involved in a construction loan?
Most construction loans in Queensland involve five or six progress payments tied to specific building stages such as base, frame, lock-up, fixing, and practical completion. Each payment requires a progress inspection by the lender's valuer before funds are released to your builder.
Do I pay interest on the full loan amount during construction?
No, you only pay interest on the amount drawn down so far. After the first stage, you might pay interest on $100,000, but by lock-up stage you'd pay interest on the cumulative amount drawn to that point. This structure keeps repayments lower during the early stages of your build.
What's the difference between a fixed price building contract and cost plus for construction loans?
A fixed price contract locks in the total building cost before work starts, giving you certainty around your loan amount and progress payment schedule. Cost plus means you cover actual costs plus a builder's margin, which lenders view as higher risk and typically require a larger deposit of 20-25%.
What happens to my construction loan after the house is finished?
A construction to permanent loan converts automatically from the building phase into a standard home loan once practical completion is reached. You move from interest-only repayments during construction to principal and interest repayments on the full amount once you move in, without needing to refinance or apply for a new loan.
Can I use a construction loan if I already own the land?
Yes, if you own the land outright, a construction loan covers just the building costs while using your land as security. Lenders assess your borrowing capacity based on the combined value of the land and completed dwelling, with the land equity often covering the deposit requirement.
