Funding a Knockdown Rebuild in Camden with a Construction Loan

The plan

With a third child on the way, their existing home just wasn't big enough. They had good equity and a block they liked, so a knockdown rebuild in the Camden area made more sense than buying and moving. The build contract came in at around $620,000. The challenge with any new build is cash flow during construction, and that is exactly where a construction loan earns its keep.

How a construction loan works

A construction loan doesn't hand over the full amount on day one. It releases money in stages, called progress payments or draws, that line up with the builder's milestones. You only pay interest on what has actually been drawn, so early on when little has been borrowed, the repayments are small. That keeps things manageable while the house goes up.

• Slab down. The first draw covers the foundation stage.
• Frame up. The next draw is released once framing is done.
• Lockup, when the roof, windows and external walls are in.
• Fit-out, covering internal fixtures, cabinetry and the like.
• Completion, the final draw once the build is finished and signed off.

What I set up

1. Matched them to a lender that handles construction lending smoothly, because slow progress payments can hold up a builder.
2. Structured the loan interest-only during the build so repayments stayed low while they were also covering living costs.
3. Made sure the loan amount and contingency were right, so a variation didn't leave them short mid-build.
4. Set the loan to roll onto standard principal and interest repayments once the home was complete.

The result

The build ran through its stages, each draw was released on time so the builder was never left waiting, and the family moved into a brand new home on the street they already loved. Because repayments were interest-only and based only on the funds drawn, the pinch during construction was far gentler than they expected.

The two things that trip people up on a build are valuations and variations. A construction loan is assessed on the value of the finished home based on the plans and the fixed price contract, so a clear, complete build contract makes the whole thing smoother. And variations, those little changes you make once you see the frame go up, cost money that wasn't in the original contract. That is why I always build a contingency into the plan. It is far better to have a buffer you don't use than to be scrambling for cash halfway through a build.