Horizon Financial - Free, independent financial advice for people in New Zealand or moving to NZ - building

By: Horizon Financial  06-Dec-2011
Keywords: Loan

There are several advantages - and some disadvantages - to building your own home. You can choose your ideal piece of land, the style of dwelling and add your own character to your future home as the project progresses.

However, selecting your dream property and building can take several months. If you're coming from overseas you'll need to make alternative accommodation arrangements while the project takes its course.

There are two types of building project loan available. These are generally known as the progressive draw-down loan and the turn-key loan.

Progressive draw-down loans
With this type of loan arrangement, your building company is paid by the bank upon ratified completion of clearly defined stages of the construction project. As the mortgagee, you must pay interest on the total amount drawn down to date, plus any rental accommodation costs you may incur while you wait. If your building project were to drag on for any reason your costs might escalate over your budget.

Turn-key loans
Turn-key loans are preferred by most banks. Essentially, they involve a fixed price contract with the building company. You pay the builder an initial deposit to get started on the project, and the loaned funds are not paid over until the project is completed.

You don't have to pay rent plus the interest on your loan - and the onus is placed on the builder to complete on time and in full.

A point to note, however, is that the total cost of your home might actually be more with a turn-key loan than with the progressive draw-down option. This is because your builder bears the cost of borrowing money to buy materials and pay his labourers during the construction project and this will increase the overall building cost of your home.

Horizon Financial will advise you on the best type of construction loan for your specific circumstances.

Keywords: Loan

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