What Are Mortgage Progress Payments?

Mortgage progress payments apply to construction home loans. When you are looking to build a new home, you will look at many different display homes, to see which one suits your lifestyle and budget. Once you have decided on a home to build, you will generally sign a fixed priced building contract with the builder, detailing the plans, specifications and pricing of your new home.

On this fixed priced building contract (some states in Australia may refer to a fixed priced building contract as a lump sum contract), you will have the final price of the home you are going to build, plus a section listing the progressive payments, as your home gets built. Generally speaking, most building contracts have 3 to 5 progress payments listed on them.

Lets look at an example of what I mean by progress payments. Let say you have just signed your fixed priced building contract, and your home to build costs $160,000. You have already found your block of land, in which you already have a mortgage of $150,000 on the block. You apply for finance to increase your mortgage from $150,000 to $310,000 to build your home. Your home loan is approved.

You now have a home loan of $310,000, but a balance of $150,000, as the new approved extra amount for your home loan, is waiting for the builder to start building your home. On your fixed priced building contract you have 4 progress payments, the schedule of payments may look like this –

Progress payment 1: $30,000 – Lay concrete pad and site works

Progress payment 2: $50,000 – Brick works, to build walls

Progress payment 3: $30,000 – To complete the roof.

Progress payment 4: $50,000 – To finish the home (tiling, paving, finishing’s etc)

This totals $160,000 to build your new home. When your builder is ready to start building, they will issue you a progress payment invoice, to give to the bank or your mortgage broker to start the build. In our example the first progress payment is $30,000. You will receive progress payment requests, as per your progress payment schedule on your fixed priced building contract, till your new home is finished, and by this stage you should be not too far from moving into your new home.

As far as your home loan goes, it will increase as your make your progress payments. In our example, your home loan was $150,000, at the start, as this brought your land. You were approved finance to build, increasing your home loan to $310,000 once the new home has been built.

Once you have made your first progress payment of $30,000, your home loan balance will increase to $180,000. Your second progress payment was $50,000, so once this work is done, and the bank pays the builder, your home loan balance will increase to $230,000. Your 3^rd progress payment in our example was $30,000, so once this work is done, and the builder paid, your home loan balance will be $260,000. Once the 4^th and final progress payment work is completed, and the builder is paid the $50,000 4^th progress payment, your home loan balance will increase to $310,000, which was your approved limit. But this stage you will be nearly ready to move into your new home, once you have done your final inspection.

During construction, you are generally required to make interest only repayments to your home loan. You are only paying interest on the balance of the loan, as the loan increases during building, not the fully approved limit, which in our example was $310,000.

If you have any comments or questions, please leave them below. If you would like more personal mortgage information, or to contact a mortgage broker, please contact us anytime.