Construction Loan Progress Draws: How Payments Work During Your Build

By Jason Given · 2026-08-16 · 7 min read

Why construction loans work differently

A standard home loan gives you the full amount at settlement. You buy an existing property, the lender takes security over it, and repayments begin immediately on the full balance. It is straightforward because the property already exists - the lender can see it, value it, and lend against it.

A construction loan funds a property that does not exist yet. On day one, the lender is looking at a block of land and a set of building plans. There is no completed property to secure the full loan against, and the lender will not release the full amount upfront because if something goes wrong mid-build, they are exposed to a loan that exceeds the value of what has actually been built.

Instead, funds are released in stages as the build progresses and the property increases in value. At each stage, the lender verifies that the work has been completed before releasing the next payment. This protects both you and the lender - you only pay interest on what has been drawn, and the lender maintains security that matches the outstanding balance.

These staged releases are called progress draws (also known as progress payments or drawdowns). Understanding how they work is essential before you start a construction project, because they affect your cash flow, your builder's cash flow, and the total interest you pay during the build.

The 5-stage draw schedule

Most building contracts in Australia follow a 5-stage payment schedule. The exact percentages vary by builder and contract, but here is the typical structure:

• 1.Slab/base stage (typically 10-15% of build cost) - Foundation is poured and cured. Plumbing rough-in for slab-on-ground builds. This is the first draw after the land purchase and confirms the build has officially commenced.
• 2.Frame stage (15-20%) - Timber or steel frame erected, roof trusses installed, building is framed and braced. At this point the structure is visible and the overall shape of the home is clear.
• 3.Lock-up stage (20-25%) - Roof on, external cladding complete, windows and external doors fitted. The building is weather-tight. This is usually the largest single draw.
• 4.Fit-out/fixing stage (25-30%) - Internal walls, plumbing, electrical, kitchen, bathrooms, flooring, painting. This is where most of the visible finishes go in and the home starts to look complete.
• 5.Completion/practical completion (10-15%) - Final finishes, landscaping, driveway, final inspection, occupancy certificate issued. Once practical completion is confirmed, the construction loan converts to a standard home loan.

Note: percentages vary by builder contract. Some builders use 4 stages, others use 6. The lender works to whatever schedule is in your building contract - there is no single mandated structure.

How interest works during construction

One of the main advantages of a construction loan is that you only pay interest on the amount drawn down - not the full loan amount. This keeps your repayments lower during the build period.

Here is how it works in practice on a $500,000 construction loan at 6.5%:

• ✓After slab draw ($75,000 drawn): monthly interest = ~$406
• ✓After frame draw ($175,000 total drawn): monthly interest = ~$948
• ✓After lock-up ($300,000 total drawn): monthly interest = ~$1,625
• ✓After fit-out ($425,000 total drawn): monthly interest = ~$2,302
• ✓After completion ($500,000 total drawn): monthly interest = ~$2,708 - then converts to standard P&I repayments

Total interest during a typical 9-month build: approximately $12,000-$15,000. This is significantly less than paying interest on the full $500,000 from day one, which would cost roughly $24,375 over the same period.

What the lender checks before each draw

The process for each progress draw follows a consistent pattern:

• ✓The builder submits an invoice for the completed stage
• ✓The lender sends a valuer or inspector to site (cost: $200-$350 per inspection, usually charged to you)
• ✓The inspector confirms the work matches the stage claimed
• ✓If satisfactory, the lender releases funds directly to the builder (not to you)
• ✓If issues are found (incomplete work, defects), the draw is held until resolved

Typical turnaround: 3-5 business days from invoice to payment. Some lenders are faster, some slower - and turnaround times can stretch during busy building periods when valuers are in high demand.

Common construction loan issues

Construction loans are more complex than standard home loans. These are the issues we see most often:

• ✗Builder invoicing before work is complete. The lender's inspector will catch this, but it can cause delays. The draw will not be released until the work genuinely matches the stage claimed.
• ✗Cost overruns exceeding the loan amount. If the build exceeds the approved loan amount, you need to fund the gap from your own resources. Always include a contingency buffer - most experienced brokers recommend 5-10% above the contract price.
• ✗Builder delays extending the construction period. You continue paying interest for longer than planned. Budget for 2-3 months beyond the quoted timeline to account for weather, material delays, and other common holdups.
• ✗Inspection delays. In busy periods, the lender's valuer may take longer to attend site. This delays payments to the builder, which can create tension. Choosing a lender with fast draw turnaround helps avoid this.