How do construction loans work?

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On the surface, buying and building a house seem pretty similar, but they’re different when it comes to the finance side.

To buy an existing property, a conventional mortgage is used, but when building from scratch, a different type of lending product is needed. It’s called a construction loan.

Specifically designed for people building, construction loans are funded in progress payments that cover the cost of each stage of a build. Payments are sent to the builder as each section is completed.

With low interest rates and a several government incentives on offer, there’s been a surge in the number of construction loans being taken out across Australia of late.

Australian Bureau of Statistics (ABS) data shows the value of new owner/occupier home loans rose 0.8% to $17.4 billion in October, a jump of more than 30% year-on-year.

“The value of construction loan commitments has risen by 65.6% since July, which coincides with the June implementation of HomeBuilder in response to Covid-19,” according to ABS’s Head of Finance and Wealth Amanda Seneviratne.

construction loan

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What’s a construction loan?

A construction loan is a loan designed specifically for those who build a home, rather than buy something that’s already built. They’re generally for new properties, but can also be used for renovations.

Construction loans offer progressive drawdown, meaning the lender pays your loan in small chunks – as and when your builder completes a stage – rather than in a lump sum.

Most construction loans are interest-only for the duration of the build too, so while your home is being built, your costs are kept to a minimum. After this time, the loan reverts to principal and interest. Most lenders, such as the big four banks, offer construction loans.

What is my mortgage repayment?



What are the advantages and disadvantages of construction loans?

As with any finance option, there are advantages and disadvantages of construction loans.

The main benefit is they minimise your monthly repayments, as you only pay interest on the amount drawn down, not the total amount. On the negative side, the deposit required for a construction loan can be higher than for a regular mortgage, but it depends.


  • Financial protection: By making progress payments, rather than paying a lump-sum up-front, you cover yourself against financial loss. You also ensure the work is completed to a satisfactory standard.
  • Reduced interest: If you’re only making partial payments, you’ll only incur interest on the amount you’ve drawn down.
  • Additional payments: Most lenders allow you to make additional payments into your construction loan. This reduces your balance and means you may pay less interest.


  • Bigger deposit: Construction loans typically have a higher loan-to-value-ratio (LVR). So, you’ll need to ensure you have an adequate deposit to cover additional costs.
  • Progress payments: Typically, your lender will need to assess work carried out before they’ll release a progress payment. This process can be time-consuming and frustrating.
  • Higher rates: Construction loans often attract higher interest rates, so it’s important to do your homework before signing a contract, so you don’t end up paying more than you should.
  • Paperwork: As a construction loan is more complex than a regular loan, the paperwork can be arduous and involve a lot of back and forward between you, the lender and your builder.

How to create a design checklist for your build

Building a home is exciting, but before you start, it makes sense to sit down and think carefully about each step. A design checklist is a great way to do this. The Commonwealth Bank offers some great advice about how.

1. Do your research

Whether building on land you own or looking to buy land to build on, research is vital. Look at what’s available, the suitability for what you want to build, the nearby infrastructure and the applicable rules and regulations.

2. Choose a builder and/or architect

It’s important to spend time finding the right builder and architect, if you want to use one. Get recommendations from friends or family, contact the local Master Builders’ Association and get several licensed builders to quote.

3. Draw up plans and get a fixed price building contract

Your builder should provide detailed plans and accurate costings for every aspect of the build. Ensure the contract covers everything and agree to a timeline for completion.

4. Understand “out of contract” items

Look into “out of contract” items. These are extra improvements which might not form part of the fixed price building contract. They’re restricted to “non-structural” works, like floor and window coverings. Additional improvements like pergolas, landscaping and swimming pools can also be classed as “out of contract”. All these extras need to formally quoted for.

5. Have your plans approved

The builder or architect generally handles getting plans approved. Ensure this is done early, as it can take time to get through council and sometimes amendments might be needed.

6. Apply for a construction loan

Next is the application process. Applying for conditional pre-approval is important, as it’ll help give you a good understanding of what you can afford when choosing the design and builder.

How are payments deducted with a construction loan?

One of the key differences between a traditional mortgage and a construction loan is how it’s paid. They’re funded in progress payments that cover the costs for each stage of your build. Payments are sent to the builder as each section is done and signed off.

Construction loan payment stages

Progress payments are typically paid in five stages:
  1. Slab or base down – The first drawdown covers the foundation. This generally includes levelling the ground and installing plumbing and waterproofing. It represents approximately 15-20% of funds.
  2. Frame up – The next drawdown is for the framing. This generally includes the construction of trusses and windows, roofing and partial brickwork. It represents approximately 20%.
  3. Lockup – Lockup is when the building is lockable to the outside world. This drawdown generally includes brickwork and external doors, putting up external walls and insulation and installing windows and doors. It represents approximately 20 per cent.
  4. Fixing or fit out – This stage covers the installation of internal fittings and fixtures and items such as internal cladding, tiles and partial installation of shelves, cupboards and cabinets. It also covers plumbing and electrical. It represents approximately 30 per cent.
  5. Completion – This payment covers the finishing of walls and ceilings, as well as painting, electrical appliance fitting and the final clean and presentation. It represents approximately 10 per cent.

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Does the construction loan cover contract changes?

Any other costs you incur, which were not in the original contract, will need to be covered by you. For example, if you choose designer items instead of the standard included in the contract, which cost an additional $2,500, you’ll need to pay this expense at the end.

However, there are exceptions to this rule. Some lenders will allow you to increase your loan to cover more substantial expenses, but you’ll typically need to apply at least a month in advance.

How do you qualify for a home construction loan?

Qualifying for and securing a construction loan is more complex than getting a regular home loan.

As well as disclosing your income, monthly expenses and assets, you’ll need to present the lender with your building plans and your builder’s credentials, as they will be assessed.

Using the plans, a property appraiser will work out the expected value of the property when it’s completed, and from this figure, determine how much money you’ll need to borrow to pay the builder.

If you’re paying a registered builder to build your home, you’ll likely need to provide:

  • A copy of signed industry-standard fixed-price contract and an acceptable progress payment schedule
  • A copy of plans (including measurements), specifications (materials and inclusions etc.) and permits
  • A receipt for any deposit paid to the builder or suppliers
  • A copy of the builder’s licence
  • The builder’s bank account details for direct credit of progress payments
  • Copies of insurance policies.

Next up is having the deposit, which can be anywhere from 5 to 25%, depending on the lender. Lenders’ mortgage insurance might also be payable.

You might also like: Understanding Lenders Mortgage Insurance (LMI)

How much can you borrow on a home construction loan?

As with any loan, the amount you can borrow for a construction loan depends on a range of factors such as your salary, living expenses, existing equity, whether you’re applying for a joint loan, interest rates and many other factors.

In general, construction loans have a variable rate, with a maximum LVR of 95%. This varies depending on lenders.

You might also like: Buying a home? Here’s what you need to know about loan-to-value-ratio (LVR)

Words by Erin Delahunty

Originally published November 2018. Updated January 2021.


If you’re thinking of building a home, but aren’t sure where to start, eChoice’s expert brokers can help you understand the market and simplify the process of applying for a construction loan.

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One of the biggest decisions when considering your mortgage is whether to choose a fixed rate or variable rate home loan, or a combination of the two. With fixed rate home loans currently the lowest on the market they’re a popular choice for new mortgagees but breaking your loan down the track can be an expensive process.

What is a fixed rate home loan?

A fixed rate home loan is a mortgage that locks in an agreed interest rate for a certain amount of time and is different to a variable rate home loan where the percentage of interest you pay fluctuates with the market. This is a legal contract guaranteeing that you’ll repay a fixed amount of interest on a loan for a specified time period.

Variable interest rates are often more popular with borrowers when interest rates are high to avoid locking in a high interest rate for a long period of time and in the hopes that they’ll be able to take advantage of a lower rate if the market shifts.

You might also like: What is a comparison rate?

Fixed rate home loans tend to be more appealing when interest rates are low. Thanks to historically low cash rates fixed rate home loans are proving one of the best options available right now. A fixed rate home loan also makes it easier to keep to a budget and offers peace of mind knowing your repayments will be the same month-to-month, as well as offering some insurance against rising interest rates. However, a fixed rate home loan locks you into your mortgage, meaning if you plan on selling you’ll have to pay fees and other costs to break your contract.

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What does it mean if you break a fixed rate home loan?

A fixed rate home loan gives you peace of mind that your repayments will remain consistent, but if also gives your lender peace of mind that they’ll receive repayments for the given length of time.

If you choose to end your contract by selling your property, switching loans or lenders or refinancing, your lender will require you to compensate them for lost interest.

A fixed rate home loan is considered broken with the borrower switches to a different product, makes extra loan repayments outside of contract stipulations, repays the loan in full before the end of the fixed rate period, or when the loan is in default.

When lenders agree to lend you money at a fixed interest rate, we obtain money from the money market at wholesale interest rates based on you making your payments as agreed until the end of the fixed rate period. If you don’t, and wholesale interest rates change, we can make a loss.

What fees do you have to pay if you break a fixed rate home loan?

The most common fees associated with breaking a fixed rate home loan are break costs and exit fees.

You may also be required to pay a discharge fee to cover administrative costs, typically around $300-$400, which also covers the cost of the lender removing the mortgage that was registered on the title of your property.

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When do break costs apply?

A break cost will apply:

  • If at any time before the end of a fixed rate period you choose to or are required to prepay all or part of the loan, then you must pay the lender the prepayment break costs that they calculate. However, you could be able to make additional prepayments up to your prepayment threshold over the total fixed rate period without incurring a break cost.
  • If at any time before the end of a fixed rate period you switch to another product, interest rate (fixed or variable) or repayment type, then you must pay the lender the switching break costs that they calculate.

Each of these events is considered a “break”.

When there is a break, you will also need to pay an administration fee regardless of whether a break cost is payable.

Most lenders will allow for some early repayments each year for fixed rate home loans without being charged additional fees.

Each lender will have their own set of terms and conditions that will detail when break costs will apply and how they’re calculated.

However, break costs are more likely to be applied when the current cash rate is lower than the rate when you took on your mortgage, and the lender is set to lose money when they establish a new loan.

If current interest rates are higher than your fixed rate, they might be more willing to let you out of your mortgage contract without charging costly break fees as they benefit from your exit.

Compare your interest rate today.


Why do lenders charge break costs?

When you agree to your mortgage contract your lender borrows money from the wholesale money market using the current Bank Bill Swap Rate (BBSR), which is locked in at the same time as the interest rate of your fixed rate home loan.

The lender agrees to pay this debt back but does not have an option to repay a loan early so when you break your loan they will need to lend the money back out to another mortgagee. If this new loan is taken out at a lower interest rate than your initial loan the lender loses money on the loan you broke.

While break costs can seem like an unfair fee, this is a way for the lending institution to recoup some of their lost funds.

How are break costs calculated?

While breaking your fixed rate home loan might not always incur large break costs, if the interest rate is not in your favour this can become quite a high cost.

Your break cost is calculated by finding the difference between the cash rate at the time you took out your mortgage and the current market rate, and using this to calculate the loss to the lender if they were to lend out the fund allocated to you at the current market rate.

Generally, you will need to pay a break cost if, at the date of the prepayment or switch, current Wholesale Interest Rates are lower than your original Wholesale Interest Rate. 

Wholesale Interest Rates are lender estimates of the current cash rate at which lenders can transact fixed rate funds with the money market. 

Among other things, the break cost formula takes into account: 

  • The original Wholesale Interest Rate on the date your interest rate was fixed; 
  • The current Wholesale Interest Rates at the time of your prepayment or switch; 
  • The prepayment threshold that lenders could allow you to prepay over the fixed rate period;
  • Any unpaid interest you may have; 
  • The timing and dollar amount of repayments required under your loan contract; and 
  • The remaining fixed interest rate period.

Each lender will have their own calculations that they’ll use to determine the break costs and should be able to provide you this formula as well details on their specific policies.

You might also like: Fixed rate home loans lowest on the market

What is an early repayment cost?

An early repayment means early repayment of the whole, or part, of the unpaid balance of your loan account, before the end of the Fixed Rate Term that was current at the time. An Early Repayment Cost or Early Repayment Adjustment may be charged when you repay a fixed rate loan before the end of the fixed rate term. This will occur when the cost of funds at the start of your fixed rate loan exceeds the cost of funds at the time of repayment, resulting in a loss to the lender.

Early Repayment cost amounts can change from day to day. We recommend speaking to your lender to find out what your early repayment costs could be and what options they recommend.

What are exit fees?

From 1 July 2011, the National Consumer Credit Protection Regulations 2010 (National Credit Regulations) prohibited early termination fees for residential loans, subject to some limited exceptions.

According to the Australian Securities & Investments Commission many home loans and loans for residential investment properties have early termination fees, which are payable if a customer terminates a loan within a specified time (e.g. three to five years). Early termination fees can be a barrier to consumers switching loans by ‘locking’ them into loans with unfavourable interest rates if the early termination fee is also high.

An early termination fee does not include any fee or charge that is payable regardless of whether the loan is repaid early or not (e.g. standard discharge fees and charges).

This type of fee is said by lenders to be charged to recover the economic cost to the lender of a customer terminating a fixed rate loan before the end of the fixed rate term. It is not charged for variable rate loans. *

You might also like: Fixed Rate Vs. Variable Rate Home Loans: Which is Right For You?

How long is a break cost quote valid for?

Given that break costs are calculated using the daily interest rate the applicable break cost for your mortgage changes day-to-day. However, lenders will generally provide an estimate that is valid for 2-5 business days depending on your lender. Once your quote expires you’ll need to seek a new one at the current interest rate.

Words by Danielle Austin


Is your current interest rate still competitive? Contact one of our mortgage brokers to compare your options and find a deal that suits you. 

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Buying a home is likely the biggest and most important purchase you’ll ever make. Thankfully, it’s also one of best investments, making all of those years of diligent saving worth it. Although getting a deposit together is the hardest step, it’s not the only transaction involved in buying a home.

There are many additional costs — both big and small — that are often overlooked by first time buyers. This can leave buyers blindsided and out–of–pocket with extra costs to cover. We’ve compiled a guide listing the upfront and hidden costs involved in buying a home to ensure you’ve covered all bases.

What are the upfront costs of buying a home?

There are various upfront expenses you’ll need to pay your lender when securing your mortgage. These are usually consolidated into a lump sum and included in your overall loan.

Stamp duty

Apart from your deposit, stamp duty is usually the second–largest upfront cost. Stamp duty is the tax you must pay on your property purchase and like your deposit, it’s calculated based on the value of the home you’re buying.

Different states and territories have different requirements around stamp duty. These rules change regularly so be sure to refresh your understanding of stamp duty frequently.

Lenders Mortgage Insurance

LMI is a one–off payment, usually between 1–3% of your loan amount. You can waive this cost if you have a deposit of more than 20% or if you have a guarantor.

Title transfer fee

This is a fee charged by the local government to transfer ownership of the home from one person to another. It varies from state to state, but generally costs are between $100 and $140.

Mortgage registration fee

Another government fee which registers your physical property as security on your home.

How much is stamp duty on a house?

The amount of stamp duty you’ll pay depends on where you live, the price of the home and whether it’s a residential or investment property. Due to this variation, it’s worth using a stamp duty calculator to determine how much you’d owe.

Can I add stamp duty to my mortgage?

Some lenders prefer you to pay for stamp duty via other means, such as your savings. However, in many cases your lender will include stamp duty (potentially your Lenders Mortgage Insurance too) in your overall loan amount.

Is the down payment an upfront cost of homeownership?

Yes, you will need to pay your deposit — also known as a down payment — to your lender upfront to secure your mortgage. However, there are some exceptional circumstances where a no deposit home loan is available.  If you already own a property, you can also use any existing equity in place of a down payment.

Do you pay tax when buying a house?

Unless you’re exempt under the First Home Owners Grant, you will be required to pay stamp duty – which is tax charged by the government on your property purchase. If you use your property as an investment property, you will also need to claim it as income in your annual tax return.

What are the extra costs of buying a house?

Most upfront fees tend to be fairly well–known among buyers. Here are the hidden fees that tend to fly under the radar:

Moving costs

Moving in to your home can be more costly than you think. A Guide to the Cost of Home Purchase estimates a bill between $550–$3500.

Inspection fees

A building or pest inspection, usually between $200 $400, could save you thousands in the future if you need an exterminator or major repairs.

Legal and conveyancing fees

It’s wise to hire a licensed conveyancer or solicitor to ensure your transfer goes smoothly and your legal documents are airtight.

Travel costs

From visiting your lender to being on site for the inspections, it’s important to keep petrol, parking and toll costs in mind. These smaller travel expenses can add up quickly.

What other bills come with buying a house?

Unfortunately, the costs of being a homeowner don’t stop after the settlement date. Some ongoing costs to factor in include:

Home insurance

You’ve worked hard to buy your new home — now it’s time to protect it. Many mortgage providers actually require you to purchase home insurance (sometimes also contents insurance) in order to cover your home when repairing and rebuilding. The cost of this can vary by as much as $1,335 in Australia, so it pays to shop around.

Strata fees and council rates

Usually billed quarterly, council rates are your contribution to local projects, infrastructure and the maintenance of public spaces. The amount you pay will depend on where you live. If you live in an apartment or townhouse, you will also need to pay strata fees to cover the upkeep of common areas like the pool or laundry, or even the building itself. 


Whether your home requires some fix–ups now or later, it’s important to factor in foreseeable renovations when choosing a home.

Utilities and household bills

Unless you rent your property out, gas, electricity, internet and water are all ongoing expenses you’ll need to cover. The amount you pay for gas and electricity depends not only on your provider but also the size and location of your property.

What fees do you pay when selling a house?

While selling your home is far kinder on the wallet, there are still some costs involved. These include:

Lender fees

If you still have a mortgage owing on the property you’re selling, you will need to pay your lender an early exit or discharge fee. This discharge process can also take between 14 to 21 days.

Agents fees

Ask your lender upfront how they expect to be paid. Some agents work with a flat rate, while others will ask for a percentage of the sale price. Some agents also use bonuses as an extra financial incentive to try and sell the property above the agreed–upon reserve.

Conveyancing fees

Much like buying a home, it’s recommended that you use a professional conveyancer or solicitor to handle the title transfer of your home

tighter lending conditions

Marketing costs

While real estate agents will generally recommend a marketing plan, it’s up to you to foot the bill. These costs can include professional photographs of your property, copywriting for your listing, creating a floor plan, signage and more.

Do you need a lawyer to buy a house?

Better known as conveyancing, legal ownership of the home must be transferred from one person to the other. While you can choose to do this yourself, it’s best to consult a licensed conveyancer or solicitor to ensure settlement goes through without a hitch.

How much does conveyancing cost?

A guide to bridging loans

Trying to sell your home while buying another can be tricky, however a Bridging loan may be able to help simplify this process

Hiring a solicitor or conveyancer can cost you anywhere between $500 to $2000.

There may also be some additional disbursement charges, which are charges paid by the conveyancer to a third party. These include settlement fees, certificates and searches such as land tax and heritage listing.

Can I do my own conveyancing?

Technically there’s nothing stopping you from handling your own conveyancing. Some states such as Victoria and Queensland even offer DIY conveyancing kits for around $100, which guide you through the process. However, it’s important to note that conveyancing can be quite time–consuming and overwhelming. It can also be quite costly if you make an error and set back your settlement process. If you’re not well–versed with legal terms or comfortable handling complex paperwork, it’s best to hire a qualified conveyancer or solicitor.

How long does it take to buy a house from start to finish?

You can generally expect it to take between 4 to 6 weeks from putting in your mortgage application until the settlement date.

Can I pay solicitors fees by credit card?

Some solicitors and conveyancers do accept payment via credit card, up to a certain amount.

Do you have to have searches done when buying a house?

Yes, a conveyancer or solicitor will normally conduct a search of property title records during settlement. They can also order other appropriate searches, such council or water rates, roads, land tax searches and heritage listings.

How long do solicitors take when buying a house?

The conveyancing process can take anywhere from 30 to 90 days depending on where in Australia you live, so be sure to check in with your local guidelines.

What’s the cheapest way to buy a house?

The cheapest way to buy a house is not always the best, as it’s more important to ensure the property is a robust long–term investment. However, there are some ways you can reduce the costs involved in buying a home. You may choose to look in a more affordable area or purchase a cheaper fixer–upper that will increase in value with renovation. It’s also a good idea to take advantage of the First Home Owner Grant if you are eligible, as this can make purchasing a home considerably more affordable.

You may also choose to use the Australia government’s First Home Super Saver (FHSS) scheme. This program is designed to make it easier for first time buyers to save for a house through salary sacrificing and pre–tax benefits.

Do you need an agent to buy a house?

Research shows that only 10 to 20% of home transactions are done without the assistance of an agent. While there’s no legal requirement to use a real estate agent, there’s a good reason most people choose to do so. Real estate agents are likely to have a much better understanding of the suburb and market you are buying in. Agents will also have better negotiating skills, meaning you’ll be left with a better deal.

What are the costs for first time buyers?

Although first home buyers are expected to pay the upfront and administrative costs mentioned, they may be eligible for a range of concessions – depending on the state or territory and property price. Each Australian state and territory has their own version of the First Home Owners Grant, so be sure to check out our guides to your area.

Words by Emma Norris

By making sure you’re aware of both the upfront and hidden costs involved in buying a home, you can approach a lender with confidence and avoid any unpleasant surprises. Need help getting a home loan? At eChoice, our experienced brokers can assist with your application and help you find the right mortgage for you.

What's my borrowing power if I earn $ per year?

The renting versus buying debate has raged on for years. Many people feel that it’s unaffordable to buy a home, so they prefer to rent. Others think renting is a waste of money and would prefer to buy.

So, is buying a house rather than renting the best choice for you? Well, this depends on your circumstances and on where you choose to live. Let’s look at the pros and cons of renting and buying a home in greater detail.

Is renting really throwing money away?

Many people classify renting as dead money. Here’s the deal: basically, when you pay rent you are paying off someone else’s mortgage or providing them with an income. Therefore, your money is not working for you, but it is working for someone else. Thus, your money appears as ‘dead’ or of little value to you.

What’s the bottom line? Well, before you rush into buying a home you must also look at the costs as paying off a home loan can be more expensive than renting. So, if you find that you are in this situation because of the location you’re renting in, then there is a way you can make renting work for you. Simply invest your money elsewhere. This will then allow you to grow your wealth and create a better financial future.

You can invest in a few ways. Firstly, you could buy an investment property in a more affordable area, while you rent a property in an area that is more expensive. Over time, your tenant will pay off your investment property mortgage for you. Secondly, you could buy stocks and shares and then watch these grow in value.

Related: Buying a property with family and friends: The pros and cons

The value in buying property

Buying your own home is what many people refer to as the great Australian dream. Factually speaking, this term is true, as when you buy a home you are forcing yourself to save and to build long-term wealth. In addition, you’re also developing your own security and controlling your financial decisions.

Of course, if you’re concerned about the level of financial commitment when buying a home, then one option you should consider is renting out a room in your home to help you cover costs. This way you won’t overstretch your budget and you’ll be able to watch your home appreciate in value.


Weighing-up whether to rent or buy

The best way for you to decide whether buying a house rather than renting is for you is to review your current financial circumstances. You can do this by looking at the purchase prices for property you’d consider buying in areas that you like. Research the market. Look at sales data and go to open inspections. There’s a massive difference between thinking you can afford to buy a home and knowing you can afford to buy a home.

Next, look at the costs of homeownership and compare these to renting, before you decide to rent or to buy. It’s also important for you to consider your lifestyle and flexibility. If you plan to move for work or study, or travel around Australia or overseas, then it may be a clever idea for you to rent rather than to buy a home.

Want to know the best part? You can easily calculate the costs of buying a home and find out your borrowing power by using stamp duty and borrowing power calculators. There are also rent versus buy calculators available that will allow you to gauge whether you’d be better off renting or buying.

What's my borrowing power if I earn $ per year?

Advantages of buying your own home

Increases financial security

While you’re able to earn an income, you have financial security. But, if your ability to earn gets compromised due to an accident, illness, or old age, then you’ll need an alternative means to provide you with an income. For many people, owning their home gives them peace-of-mind that if they need to they can sell this asset so they will have enough money to live on. The same does not apply to renting.

More freedom to personalize your home

When you own your own home, you make the rules. You can renovate your house, welcome your furry friend and do simple things like hang pictures on the walls. These are freedoms that are often not available to renters and can impact your quality of living significantly.


The process of moving from home to home is laborious- and a challenge that serial renters know all too well. Having a home to call your own will mean that you have the security to stay and leave as you choose. You will no longer have to deal with the anxiety of the landlord kicking you out – which is common in Australia where residential leases typically only span six to twelve months.

Tax-free selling

We all dread paying tax, but with selling your own house you don’t need to worry about all your money falling into the pockets of the government. This is because Australians are exempt from the Capital Gains Tax when they sell their primary place of residence, so you will be the one profiting when you sell your home. 


A tool for wealth building

Buying a home typically allows you to create wealth, with rising house prices and low interest rates being the optimum formula. This is because equity will be increasing.

Equity is the difference between the value of your property and the value of your mortgage. It can be used for further investments, or for other business/financial purposes.

Let’s say that you bought your home for $420,000 and 12 years later an agent values your home at $580,000. Over the 12 years, you’ve also reduced your mortgage from $260,000, down to $90,000. Therefore, the amount of equity you have in your home is its current market value of $580,000, less what you owe on your mortgage being $90,000, which equates to $490,000.This equity, which you’ve built-up, could then put you in a position to be able to secure the purchase of an investment property

Regions where it’s cheaper to buy than rent

Buying a house doesn’t have to be a far-fetched fantasy only available to the wealthy. Data from the November 2019 ANZ CoreLogic Housing Affordability Report has revealed that there are regions in Australia where it is actually cheaper to buy than rent.

Why is this happening?

These are all very different areas. Some of these places are rural, some are suburban, and some are tourism hotspots. Begging the question, what is making these areas cheaper to buy in?

The ABC has identified various trends in the areas where it was found to be cheaper to buy than rent. For instance, mining towns were cheaper to buy due to the high numbers of fly-in mining and construction workers which has created a demand for rental properties.

Similarly, regions such as the Gold Coast, Whitsundays and Alice Springs, which appear on the list, can thank the booming tourism in the area that has made it cheaper to buy due to the high rates of rental occupancy.

Research from Domain has also found that the combination of declining interest and mortgage rates has increased the number of suburbs where buying is cheaper. They also noted that many of the regions were in lower socio-economic areas.

Related: How to get into the property market when you’re not on a 6-digit salary

If buying a house rather than renting is for you, then contact eChoice today. Our brokers have access to 100s of products, so we can help you find an affordable home loan.

What is my mortgage repayment?



Seemingly, the only thing more boring than mortgage talk is insurance talk. Despite this, sometimes renegotiating your mortgage is necessary, especially if your current deal is ripping you off.

As life goes on circumstances change, and if you refuse to look at giving your mortgage an update, you could be missing out on a better – money saving – mortgage deal. Lower interest rates, a higher income, new job or just the fact you’ve paid off a lot of your current loan could all earn you a better home loan.

Although it might seem daunting, renegotiating your mortgage is not hard. Like most things, it’s just a matter of knowing what to do, so to help you out we’ve compiled a list of tips to help you renegotiate your mortgage with confidence.

Be clear on what you want before renegotiating

When you first sit down with your lender to renegotiate your mortgage, it’s important to have a clear idea of what you’re trying to gain, otherwise you might walk out with a deal that doesn’t reflect your interests.

What are your goals for the renegotiation? Are you looking to decrease your monthly repayments? Lower your interest rate? Or are you just looking to add features to your account, such as access to redraw facilities?

It’s also important to be able to tell the lender why you want these things. Are you saving for a renovation? Looking at investment in the future? Or do you just know that you could get a cheaper deal elsewhere? Clue the lender in and you’re likely to have more success.

Know the competition‘s mortgage deals

No matter how many debate championships you’ve won, if you’re campaigning for an impossible deal, chances are your lender is going to say no. Likewise, if you’re not asking for enough, you could also be letting yourself down.

For this reason, it’s important to know the competition. What kind of deals would you be eligible for if you moved elsewhere, instead of renegotiating? Compare other lenders’ mortgage rates and products with your own. Look at their interest rates, fees and charges and print them out to take to your meeting.

While research might be tedious, being more informed increases the likelihood that you could walk out with a better deal – or at the very least, if your lender says no, you’ll know where to go next.

Work out the cost of moving lenders VS staying put

Seriously consider the costs of refinancing your mortgage with another lender – and add them up! If your current lender can’t offer you what you want and someone else can, how much is going to cost you to move? Are there break fees? Any closing fees? Would you need to re-pay lenders mortgage insurance? Whether or not the cost is worth it, once you know where you sit you will be able to better negotiate with your current lender.

Be understanding

All lenders are different, and all lenders are going to have different capacities as to what deals they can offer when renegotiating. If you’re with a smaller lender, they might not have the same backing behind them to offer a better, more risky deal than a bigger lender might have. At the same time, if you’re self-employed or there is something ‘non-standard’ about your application, there might be a limited number of lenders with the flexibility to offer what you’re asking for.

By all means, ask for what you want but understand that despite your best efforts, a renegotiation with your current lender might not always be possible.

Words by Kathryn Lee

Want a better mortgage deal? Refinancing might be an option. Contact eChoice and we’ll put you in touch with one of our friendly mortgage brokers who will be able to help guide you through your options and find you a better deal.

What is my mortgage repayment?



Now that we are living longer, retirement can be a threedecade period, sometimes more.  That’s a long time to be worrying about debt.

Despite its significance, a large number of Australians aren’t thinking about retirement early enough. As a result, more and more Aussies are now working into what used to be considered ‘retirement’ years to pay off their mortgage. On the other end, those who do retire are more likely to experience financial insecurity.

But with some planning, you can make a big dent in your debt and improve the quality of your retirement.

More mortgage for longer

Significantly more Australians are retiring with debt, according to a recent study by the Australian Housing and Urban Research Institute (AHURI). With house prices rising and wage growth on a slower trajectory, many retirees are struggling to keep up with mortgage debt.

Between 1987 and 2015, the average mortgage debt for over–55s jumped from $27,000 to over $185,000.

It was found that mortgage repayments were the largest expense for retirees, eating up to one third of their spending. With ongoing repayments some retirees are left without enough funds to cover basic living costs. About 8% of older Australians with mortgages have reported falling behind on utility bills, compared to the 3% of outright homeowners.

Looking at data from the Australian Bureau of Statistics’ survey of income and housing, there are similar findings, with an increase in homeowners owing money on mortgages across every age group between 1990 and 2015. But the biggest rise in debt is among homeowners approaching retirement.

The cost is bigger than you think

It is undisputed that being indebted adds to psychological distress. Alarmingly, these impacts are more profound for older individuals who have less ability to recover from financial shocks.

This growing debt has also increased the chance of poverty during retirement. With unwelcome risks including forced retirement due to health or an employment shock, plans to keep up with repayments may be derailed.

From 2000 to 2010, approximately half a million Australians age 50 and over lost their homes.

How you can own your retirement home

Financial planners suggest that you should be looking to pay off your home at least ten years before you retire. To do this, you need to map out how you will reduce your home loan debt.

  • Bump up repayments as the funds become available. If you find you’re managing repayments comfortably, incrementally bump this figure up by $50 a week.  Eventually, you will find the right balance for your cash flow. You can find more tips on getting ahead here.
  • Selling unwanted belongings is a useful strategy to put money towards your home loan. With a lifetime of accumulating belongings, one big overhaul could add thousands to your income.
  • Lump sum payments are a great way to lose potential accrued interest. This could come from an inheritance, the sale of a vehicle or even a garage sale.
  • Shop around and refinance. With some home loan rates at the lowest ever recorded, below 3%, refinancing could help secure a better deal. With less interest, you could keep your repayment the same and shorten the lifetime of your loan by years. You can find more information on refinancing here and here.
  • See a financial planner. If you’ve already hit your 50s, it’s time to sit down and devise a plan on how you will pay off your mortgage before retirement. This might require you to cut your spending or make other changes but doing this while still earning a salary will give you greater flexibility.
  • Talk to your accountant. Checking in with your accountant could help you find the most tax effective way to pay off your mortgage, while saving some money in your super account for retirement.

Words by Michelle Elias

Want to know more about your options for investing in property during retirement? Contact eChioice and we’ll help you find the right deal. Our brokers have access to 100’s of home loan products, so we’ll be able to find you the right mortgage.

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When buying your investment property, it’s vital to keep costs and returns in mind. This perspective keeps property investment real and stops you from getting caught up in the savings hype. Let’s look at investment property tax from both sides of the coin, so that you can work out the costs and how much you could save.

There are many taxes that you’ll attract as a property investor as well as deductions that you’ll be able to make at the end of the fiscal year. Consequently, you need to weigh-up both to find out whether or not buying an investment property is justifiable.

Investment Property Tax Incurred

There are several taxes associated with your property investment. Some are tax deductible, while others are not. The following are the most prominent:

  • Income Tax – Any rent or other monies collected as the property owner is declarable as taxable income.
  • Capital Gains Tax (CGT) – When you sell your investment property, if you make a profit, then you would’ve made a capital gain. The gain made is taxable. Therefore, the profit made adds to your regular income in the year of the sale.

How is capital gains tax calculated?

  • The sale price of your property.
  • Less the purchase price and any buying, ownership and selling costs.
  • If ownership is longer than 12-months, you’re entitled to a 50% gains discount.
  • Your annual income in the year of sale.

Let’s look at an example.

You buy an investment property for $190,000 in 1998. In 2018, you sell this property for $490,000, and your current taxable income is $50,000. The cost to buy the property including stamp duty, tax advice and capital improvements was $47,000. Ownership costs were $126,468 and the costs of selling $23,000. Based on this, the capital gain made was $103,432. Subsequently, the tax payable under the new Capital Gains Regime of a marginal tax rate x half the capital gain is $24,582.

  • Property Tax – Also known as council rates, this tax covers the cost of local government services such as community services and rubbish collection. The cost of this tax varies from council-to-council, so ask about rates when buying to avoid unexpected charges.
  • Land Tax – All state governments charge land tax, excluding the Northern Territory. This tax varies depending on the state of property purchase and is payable only on the land value of the property; hence it excludes any dwellings or improvements. Also, this tax does not include your principal place of residence. To calculate costs of this tax, contact your tax adviser.

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Investment Property Tax Deductions

A vast range of expenses that relate to your investment property are tax deductible, so keep sound records and all receipts. However, remember that you can only claim these if the property is an investment that you don’t live in, which is either currently tenanted or available as a rental.

Properties built or renovated to a tenant are exempt from the payment of GST. However, if you’re building to sell for a profit or looking to ‘flip’ the renovated property for profit, then you’re liable to pay GST on the sale; you will also have to pay capital gains tax.

In most cases, the general tax allowances for your property investment are straightforward. These are as follows:

What can I deduct?

  • Tenant advertising costs – Paper, online and billboard.
  • Property management fees – Real estate agent or self-managed costs.
  • Any bank charges – Loan interest and ongoing loan fees.
  • Local government fees – Annual council rates and the emergency services levy and land tax.
  • Strata fees – Grounds maintenance and building insurance.
  • Depreciation – The building structure, lighting fittings, appliances – dishwasher, fridge, and hot water service – blinds, carpet and flooring, and new additions such as a kitchen upgrade.
  • Repairs and maintenance – Gardening, paint, plumbing and maintenance, as well as wear and tear.
  • Insurance – Building and property owner coverage.
  • Stationery – Receipt books, pens, printing, and paper, as well as phone costs.
  • Bookkeeping and accounting – Record keeping and taxes.
  • Legal fees – Conveyancer at the time of purchase.
  • Utilities – Water, gas, and electricity installation, along with ongoing sewer fees.
  • Travel – Costs associated with the inspection of the property.

While this is an extensive list of tax-deductible items, there may be more. Therefore, always consult your accountant before lodging your tax return.

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Negative Gearing and Your Investment Property

Negative gearing refers to the situation where the costs of owning an investment property are more than the rental income, resulting in a loss. In this case, the Government allows investors to claim their investment property expenses off their income before paying tax, thus paying less tax.

So, how does it work? Well, when an investor buys a property they incur expenses – loan interest, council fees, etc. – and they collect rent. As soon as the cost of owning the property becomes higher than the rental income collected, the property becomes negatively geared.

For example, let’s say you collect rent of $15,200 a year on your property, but your property expenses are $17,500 yearly. Consequently, this means that your property expenses become tax deductible. So, if you earn $52,000 in this financial year, then your taxable income becomes $34,500. So, you’ll incur tax on this amount.

How does negative gearing benefit me?

  • Reduces your tax.
  • Rental property becomes more affordable.
  • Encourages you to build a portfolio.

What are the risks for me?

  • You’ll have to cover some property expenses.
  • Some payments, such as paying the loan principal are not tax deductible.
  • You need good money management skills.

Not all investment properties are negatively geared. Some rental properties collect more rent than ownership costs making them positively geared. Once this occurs, the profit made on the property annually becomes a part of your taxable income.

So, if you’re purchasing your own investment property and need a property investment loan, contact eChoice and achieve your investment goals faster by speaking to a qualified mortgage broker who can help by gearing your property portfolio with the right investment loans. Our brokers have access to 100’s of products, so we can help you find a competitive mortgage to meet your individual needs.

Property investment builds wealth providing you make sound decisions that create excellent financial returns. However, there’s an art to investing right. So, before you rush out and start buying property, you need to do your research and consider the upfront costs involved in property investment. Then, you can determine if property investment is affordable for you. Let’s look at the costs you may encounter and just how expensive these may be so you can adequately budget when looking to buy an investment property.

Know Your First Home Owners Grant Eligibility

Knowing whether you’re eligible for the First Home Owners grant could save you a considerable amount of money. Most Australian grants are more than $7,000, and this can cover some expenses such as stamp duty or associated fees when buying.

Generally, the grant varies in size depending on where in Australia you are seeking to buy. Additionally, the grant’s size changes depending on which government is in power, and on state and federal government budgets.

Also, there are a few rules that you’ll need to meet before you can receive the grant. While these are straightforward, it’s important that you read the full documentation, and then apply. This strategy ensures that you’ll have the best chance of approval.

So, who is eligible for the grant?

To be eligible for the grant, you’ll need to be:

  • A first home buyer who has never purchased property in Australia.
  • Residing in the home for 12-months or more.
  • An Australian citizen or New Zealand permanent resident.
  • A person aged 18-years or over.
  • Buying a property that is under a specified value.
  • Purchasing a new or extensively renovated home.
  • A natural person and not a company.
  • Buying the home with another person, if you have a spouse/partner, who also has never bought property in Australia previously.


Stamp Duty

Stamp duty is a government cost that differs from state-to-state. Though, in most cases, it is dependent on the purchase price of the property. Some states also offer first home buyers stamp duty exemptions. So, it pays to review your eligibility.

How does stamp duty affect me?

Stamp duty can:

  • Add thousands to the purchase price of an established home or land.
  • Be an unexpected cost.
  • Get calculated as a percentage of the total purchase price of a property.
  • Vary in cost from state-to-state.

The Deposit

If you don’t have home equity, then you’ll need to save a deposit before buying an investment property. Sure, you can borrow more than 80% of a property’s value, but you’ll have to pay Lenders Mortgage Insurance (LMI). This insurance can add tens of thousands to the cost of property and is an additional cost that you should look to avoid, if possible.

Who does LMI protect?

  • LMI is lender insurance that protects the lender against loss.
  • Should you default on loan repayment, LMI covers the lender’s costs.
  • As a borrower, LMI is of no benefit to you.

Land Tax

Your primary place of residence is exempt from land tax. Nonetheless, an investment property may attract a fee. Once again, this tax varies from state-to-state.

What are the terms of land tax?

The amount of land tax payable depends on the state the property is in, and the value of the property. Other considerations are:

  • Land to a certain value is exempt from land tax.
  • After you reach the threshold, you’ll have to pay an annual fee.
  • Tax is only payable on the land value, not the home.

Council Rates

Local council taxes apply to property you purchase. These fees vary depending on the council that governs your property and the estimated value of the home.

What does this cost cover?

This property investment cost typically covers:

  • Road and footpath, kerbs, channels and drain maintenance.
  • Rubbish collection – though some councils charge extra.
  • Sewerage and light maintenance.
  • Infrastructure and services.

Corporate Body Fees

Should you purchase a townhouse, unit or apartment, this will attract a corporate body fee. This fee covers the costs of maintenance and insurance for the grounds and buildings. All complexes have varying fees depending on the property type purchased and the size of the actual property.

How much are corporate body fees?

  • These fees can be anything from a few hundred dollars per quarter through to thousands of dollars.
  • Fees typically vary depending on the size of the complex. So, the more apartments or units, the larger the fee.
  • The more amenities offered by the complex – tennis court, pool and gym – the higher the fees.

Utility Costs

When you first buy property, you’ll need to ensure the installation of all utilities. These include water, electricity, and gas, if available. While your tenant handles the connection and usage cost to all utilities, except water, you’ll need to manage the initial utility set-up.

What utility costs apply?

The costs you can expect to pay include:

  • Initial water connection and ongoing sewerage fees.
  • Gas and electricity installation and upgrades.

Emergency Services Levy

Any property attracts an emergency services levy. This fee pays for the metropolitan and country fire service, state emergency services and marine rescue.

How is the fee calculated?

The services levy is governed by:

  • Investment property values as determined by your official council rate notice, not market value.
  • Your property’s location – regional or city code.
  • The fixed council fees.

Are you in search of a competitive investment loan? If you said YES, then contact eChoiceour brokers have access to 100’s of products. So, we’ll find the right mortgage for you.
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Creating a home budget is an excellent way to take control of your finances. Plus, it enables you to save for a home quicker, and then to manage the mortgage once you are committed. So, while it seems daunting, working out where you spend money, and how you can save, is sound monetary management. In addition, after you’ve done it once, it’s straightforward and efficient to use repeatedly. Let’s look at how you can ‘crunch those numbers’ and become a financial guru.

The Principals of Home Budgeting

A home budget shows how much you are earning, spending, and saving. So, while it’s tempting to avoid doing a budget, the outcome is well worth the effort. Why? Well, creating a realistic budget helps you to achieve your savings goal faster.

A straightforward way to create a home budget is to review what you earn, what you are spending where, and then calculate your savings. Here’s the deal:


Write down your current income – Grab your pay slip and jot down your take-home pay after tax and super. Now: if you’re self-employed, then use your business bank statements to calculate your average weekly wage. But, if you find that your salary fluctuates depending on work, then look at your last tax return. Also, include any other sources of income – child support, government benefits, etc.


Calculate your spending – Think about what you buy every day – coffee, lunch, and treats. Let’s call these luxury items. Next, write down every daily and weekly expense, and be honest. Taking shortcuts here won’t reveal how much you’re spending otherwise. Don’t forget to include the cost of running your car – registration, petrol, insurance – and make sure you include your bills. If you’re not sure what you’re spending, then look at your bank statements and create a monthly diary of your spending. Make sure you write down all living expenses – food, nights out, entertainment, school fees, etc. Let’s call these necessities.


Work out your savings – Add up the ‘luxury items’ and ‘necessities.’ Then, take the necessities from your income, and see how much is left. This amount is how much you could save if you forgo those luxuries.

Including Occasional Costs in Your Home Budget

No one likes them, but there are times when occasional costs arise. These costs include those expenses that come around annually or once every few years. These include school fees, new tyres for the car and servicing, as well as life insurance and other costs. Therefore, when making a budget, it is essential to add these to your spending as well.

What's my borrowing power if I earn $ per year?

Grouping Spending into Categories

You might be wondering: if you are finding it hard to account for everything you spend, then a handy method to overcome this is to use categories. Want to know the best part? Grouping items together takes the guesswork out of budget creation, and makes it easier to cover all your expenses. Some categories you could use include:

  • Food and drinks – Groceries, lunches, coffees, dining out, Saturday night at the pub and any snacks.
  • Clothing – Work and everyday clothing, beachwear, hats, bags, and shoes.
  • Transport – Vehicle running costs, parking, repairs, maintenance, insurance, and roadside assistance. On the other hand, if you don’t have a car, then include bus, train, or tram fees.
  • Communication – Mobile phones, the internet, and landline costs.
  • Insurance – Health, life, income protection and content insurance.
  • Health and wellbeing – Gym and club fees, medical costs, pharmaceuticals, and cosmetics.
  • Life and leisure – Christmas and birthday presents, gifts for other occasions, magazines, subscriptions, weekends away, the movies and entertainment.
  • Replacement costs – Fridges, phones, computers, and other items need replacing. So, you’ll need to set some money aside for these.
  • Debts and bills – Personal loans, credit cards, store accounts and utility costs. Also, make sure you include annual fees, as well as any interest.
  • Miscellaneous – Anything else that doesn’t fit into any other category such as university and school fees, childcare, and pets.

An Impressive Home Budget Covers Unexpected Expenses

When creating a home budget, always make sure you set aside some money to cover anything unexpected. For example, rises in rent, higher than expected bills and appliance breakdowns. If you own a car, then set aside some money for repairs, because sometimes a vehicle needs extra work to keep it running.

If you’re saving for a home loan deposit, then it is a smart idea to calculate your stamp duty and other costs such as moving fees and conveyancing charges. This strategy will enable you to save more so you cover all costs, and so you avoid any financial difficulties once you’ve committed to buying a property.


Brilliant Home Budgets are Realistic

Saying that you are going to forgo all luxuries until you’ve saved for a home is not realistic. Therefore, it’s vital that you include entertainment, the odd night out and gifts within your budget. By making your budget realistic, you will find it easier to maintain. Moreover, you’ll also discover that it’s not too restrictive on your lifestyle.

There are many ways that you can save for a home loan faster. Here are two of the best:

  1. Download an app – There are smart tools available online that help you save. Just download the right app for you, then put in your expenses, and the app handles the rest.
  2. Review high interest savings accounts – If you are looking to save faster, then consider opening a high interest savings account. Some offer you rates of up to 3%.

Are you looking to purchase a home soon? Then contact eChoiceour brokers have access to 100’s of products, so we will find you a competitive mortgage.