Skip to content

Dealing With The Bank

Firstly I'd like to preface this with I am not a financial advisor. All I want to highlight here is my experience with applying for a loan to complete my house extension.

What I applied for was a construction loan through Bank West which meant until you have completed your final payment the loan would be interest only after which it then defaulted to principle and interest.

I ended up using a mortgage broker purely because I figured that would carry more weight when discussing the best interest rates which turned out to be the case after I tried contacting the banks directly.

With my construction loan the bank wanted the builders payment schedule to be categorised into the following lump sum payments:

  • Base / Pad
  • Frame
  • Roof
  • Lock up
  • Final

With each stage they'll have someone visit onsite to review the progress of the build before accepting and releasing the funds. There was a reference code I used in my mobile banking app and would attached the builders invoice and the bank would release the funds once approved. It was actually very easy and straight forward.

Once the final payment had been completed the bank then merged the construction loan into my regular mortgage account so I had a single account to manage the interest and principle moving forward.

Before I applied for the construction loan I figured I would use my savings first and then borrow the amount required to finish off the build. It doesn't work that way the bank asked me to use my savings to pay down my existing mortgage and then gave me a construction loan for the full amount of the build so they can better manage the risk:

Example

$200,000 = existing mortgage | $ 50,000 = savings | $300,000 = build extension cost

What I thought would happen:

I use the $50,000 of savings to start the build and then borrow $250,000 as part of the construction loan to pay for the rest of the build.

What actually happened:

The bank requested that I put the $50,000 savings onto my existing mortgage reducing it to $150,000 and provide me with a construction for the full amount of the build $300,000.