Reverting back to a residential loan post construction

Hello,

Situation:
I'm demolishing an existing dwelling to subdivide the land into two lots and build two separate dwellings. In order to do so, I need a construction loan. However, since construction loans are generally at higher interest rates than residential home loans, once the construction is finished, it would serve me to revert back to a residential loan.

Potential barrier:
Say during construction, I change jobs. My new job doesn't pay as well as the previous job. In fact, based on my new salary, the bank wouldn't have loaned me enough for the construction anyway. Will I have problems reverting back to a residential loan in this case?

Thank you.

 

Couple of things -
Constructions loans generally aren't more expensive, and will revert to a standard variable upon completion.

Once your loan is approved and draw-downs have begun, as long as you continue to make payments it's not going to cause an issue with the bank. However if you know that you're changing jobs, you're going to have to answer the "Do you know if any changes to your circumstances that will affect your ability to repay the loan" question honestly in your finance application, and they may not lend the money to you in the first place.

 

Are you saying that construction loan interest rates are around the same as standard variable? I've been told by St George that a construction loan will be at around 5%. And standard variable rates seem to generally be a bit less.

And does it revert to standard variable upon construction completion automatically? Or do I have to apply?

 

Yes, they're the same usually, but the rate might seem higher as it'll have an IO loading - the construction portion is always IO. It will revert back after completion if that's what you want, depends if you want it to be P&I or not.

 

Can you request for it to automatically revert to IO standard variable upon construction completion? Will they do an employment check before it reverts?

 

That would need to be part of the original application.

If the loan has been initially set up as a P&I construction loan, it would be I/O during the construction phase, then revert to P&I.

The loan can be set up as I/O for up to 5 years (in most cases). This loan is simply I/O for 5 years (the construction should be a lot quicker than that), then it reverts to P&I like any other interest only loan.

 

If you wanted to refi it and have each loan against each title, that'll likely trigger credit reassessment which may be an issue (based on your stated circumstance).

If your happy keeping it as one loan secured by two titles, than the loan should just revert to a standard resi loan post construction. Most don't need to refi out post constructions of simple H&L loans, its all done at the original application.

Reason for 5% rate is likely the product your seeking is an IO variable loan, which attracts a higher rate than most. During fixed period you can't fix to a lower rate either.

 

Great, I think I have my head around it now.
Thank you everyone who contributed.