Beginner's Guide to Construction Loan Monitoring

Construction loan monitoring is how your lender confirms that each payment to your builder matches work actually completed on site.

For a New Farm resident planning a build, the main takeaway is this: your loan is released in stages, so your cashflow, your building contract and your lender's process all need to line up before work starts. Getting that alignment right protects both your budget and your build.

What Is Construction Loan Monitoring?

Construction loan monitoring is the lender's process of checking progress and releasing money in instalments rather than as one lump sum. This is often called a progressive drawdown.

Before each release, a lender will typically want evidence that the stage is finished. That may include a claim from your registered builder and a progress inspection of the site. The exact requirements, number of drawdowns and fees are set by each lender, so confirm them before you sign anything. Our construction loans page explains the structure in more detail.

How a Construction Draw Schedule Works

A construction draw schedule lists each stage of your build and the amount of the loan released when that stage is completed. It usually mirrors the progress payment schedule in your building contract.

In Queensland, the number and timing of progress payments are negotiated, but payments must relate to the work completed. A contractor cannot claim more than 50 per cent of the contract price, including the deposit, until at least 50 per cent of the on-site work is complete. The maximum deposit is 5 per cent for contracts of $20,000 or more. It can reach 20 per cent where off-site work makes up more than half of the contract price.

These rules come from the Queensland Building and Construction Commission, and they are a useful check when you review a draft fixed price building contract. If a schedule asks for money well ahead of the work, raise it with your builder and your broker before signing.

What Does Interest Cost While You Build?

Some lenders charge interest only on the amount drawn, but this varies. Check your lender's terms for the repayment type and when repayments start.

Consider a New Farm owner building a home with a total loan of $600,000. If interest is charged only on the amount drawn, then at an illustrative rate of 6.75% p.a., a first draw of $100,000 for the slab stage would cost $562.50 a month in interest. After later stages bring the drawn balance to $250,000, interest rises to $1,406.25 a month at the same rate.

The trade-off is that repayments increase as the build progresses. If delays stretch the timeline, you may also be paying rent or other housing costs alongside the loan. You can test different drawn balances with our loan repayment calculator.

Why Paying Your Builder Early Can Backfire

Paying ahead of the work completed can reduce your protection. In Queensland, payments made early, or above the contract amount, reduce protection under the Queensland Home Warranty Scheme.

This is one reason monitoring exists. A lender releasing funds only against completed stages also keeps you from paying for work that has not been done. If a plumber, an electrician or another trade is waiting on a payment, ask your builder how they pay sub-contractors and how claims are timed against the lender's inspection process. Delays between a claim and a release can affect site schedules.

How Do Lenders Assess Borrowing Capacity for a Build?

Lenders assess whether you can afford repayments at a rate well above the loan's actual rate. APRA confirmed on 28 May 2026 that authorised deposit-taking institutions must assess new borrowers at a rate at least 3 percentage points above the product rate.

This applies to your construction loan application as it does to any home loan. If you choose interest-only repayments, APS 112 requires lenders to assess serviceability over the period when principal and interest repayments apply, not the interest-only period. That means the shorter remaining term is what counts. Variable income such as bonuses or overtime may also be discounted by a prudent lender. To see where you stand before you speak to a builder, start with our borrowing capacity page.

APRA's debt-to-income limit exempts finance for the construction of new dwellings, but that does not remove the serviceability assessment above.

Is Construction Loan Interest Deductible for Investors?

Interest on a construction loan for a rental property may be deductible, but the outcome depends on how your loans are structured. Speak to your accountant before relying on this.

The ATO's published position is that holding costs for vacant land, including interest on money borrowed to buy the land, are not deductible. Interest on borrowings associated with constructing the building is treated differently. If one loan funds both the land and the build, the interest must be apportioned. If you are weighing an investment build, our investment loans page covers how we approach structuring, and your accountant can confirm the tax treatment for your situation.

Building Near New Farm Park or the River

Lender requirements vary by lender and by project type, so confirm them for your build. Most lenders will ask for approved plans and a signed building contract. Confirm your lender's requirements. Our mortgage broker in New Farm team can review the numbers with you before you commit.

Building a home is a major financial decision, and the loan structure around it deserves as much attention as the design. Call one of our team or book an appointment at a time that works for you, and we will walk through your draw schedule, repayments and lender options before your build begins.

Frequently Asked Questions