Common Mistakes With Construction Loan Fees

Construction loan fees are set by each lender, so the most useful step is to ask for a full fee list before you sign a building contract. Tech professionals are used to reading the spec before committing, and the same habit works here.

A construction loan pays your builder in stages instead of one lump sum. Many of the extra fees are linked to those staged payments. The sections below cover the fees to look for and the mistakes that tend to cost borrowers money.

What Fees Come With a Construction Loan?

A construction loan can carry the usual home loan fees plus extra charges linked to the staged payments, and the exact fees depend on the lender. Common ones include an application or establishment fee, a valuation fee, an annual or package fee, and a fee each time money is released to your builder.

That last one is often called a progressive drawing fee. Some lenders charge it per payment and some do not charge it at all, so compare the number of payments your build needs against each lender's fee. A build with six or seven stages can add up quickly if each release has a cost.

The trade-off is that a lender with a lower upfront fee may charge more elsewhere. Look at the total cost across the whole build, not one line item.

Mistake 1: Ignoring Fees That Are Charged at Each Progress Payment

A common mistake is to compare only the interest rate and overlook the fee charged at each progress payment. Your builder's contract sets how many payments there are, and your lender decides what each release costs.

Progress payments are tied to stages of the build. In New South Wales, for example, the Home Building Act sets a maximum deposit of 10 per cent, and progress payments must match work actually carried out. Other states have their own deposit limits and payment rules, so check the rules for where you are building.

Ask your broker to compare your builder's payment schedule against each lender's fees on our panel. It takes the guesswork out of the comparison.

Mistake 2: Assuming You Only Pay Interest on the Full Loan

During construction you are generally charged interest only on the amount drawn so far, not on the full approved amount. This keeps early repayments lower, but the amount grows with each payment.

NSW Government guidance says a borrower financing a project home must start mortgage repayments once the first progress payment is made and the loan begins to be drawn. The exact repayment terms during the build depend on your lender.

Here is an illustrative example at 6.75% p.a. Say a borrower has drawn $100,000 so far. Interest on that amount for a year would be $6,750, which is about $562 a month. When the final payment brings the drawn balance up, the monthly interest rises with it. The rate is for illustration only and is not a current offer.

The risk is a repayment squeeze late in the build. Budget for the higher figure, not the early one. Lenders also assess whether you could cope with a rate well above the one you are offered. APRA confirmed in May 2026 that the buffer is 3 percentage points. Our borrowing capacity page explains how this affects what you can borrow.

Mistake 3: Forgetting Inspection and Valuation Costs

Lenders usually want a check on the build before releasing each payment, and someone has to pay for it. Some lenders cover this inside their fees and others pass it on.

Building Commission NSW gives $250 to $500 as an indicative cost for each independent progress inspection. That is a guide for independent inspections arranged by owners. It is not a statement of what any lender charges. Ask your lender who arranges the check, who pays, and whether a failed or delayed inspection costs extra.

Example: Comparing Two Lenders (Hypothetical)

This is a hypothetical example only, with made-up figures. Consider a software engineer building a home on land they already own, with a fixed price contract that has five progress payments over about nine months. Lender A offers a lower rate but charges a fee at each release and a higher annual fee. Lender B has a slightly higher rate, no fee per release and a lower annual fee.

The outcome depends on the actual rates, fees, loan size and drawn balances over the build. For some builds the lower rate will win, and for others the fees will matter more. That is why the comparison needs to be done with your numbers, adding up interest on the drawn amounts and every fee. For a project with a package deal, our page on house and land package loans covers how the staged payments work.

Mistake 4: Not Planning for Variable or Irregular Income

Tech income often includes bonuses, RSUs or contract rates, and lenders treat these differently from base salary. APRA says a prudent lender would apply discounts of at least 20 per cent to less stable income such as bonuses or overtime.

This matters because the construction loan fees and higher late-stage repayments all need to fit within what the lender will assess. If part of your income is variable, plan on the lender counting less of it. Our guide on using RSUs and bonuses as genuine savings explains how this can work for your deposit.

Mistake 5: Leaving the Fee Conversation Until After You Sign

Ask for the fees before you sign the building contract, because the contract fixes your payment stages and the lender must be comfortable with them. Changing the schedule later can be hard.

A lender may also want to see your plans, council approval and builder details as part of the application. Getting the lender's fee schedule and your payment schedule side by side early means few surprises. Our construction loans for tech industry workers page outlines how we handle this for tech professionals.

If you are also weighing up upgrades to a home you already own, see our page on renovating your house, since renovation loans can have different fee structures.

If you want a side-by-side fee comparison for your build, call one of our team or book an appointment at a time that works for you. We will walk through your builder's payment schedule and show you what each lender's fees add up to.

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