How To Find The Best Interest Rate For A Construction Loan
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If you’re looking at applying for a construction loan, you might be feeling overwhelmed by the different types out there. When looking at construction loans, it’s important to find one with the best interest rate. However, to do that, you generally need to know how interest rates work, and why they do work the way that they do. When looking for a construction loan, you might find it helpful to employ the services of a broker. A broker can help you to navigate the different loan terms and types, and help you to find a loan with the best interest rates possible.
Read on below to find out about to find the best interest rate for a construction loan.
How to find the best interest rate for a construction loan
It can be difficult to navigate the construction process alone. Choosing an experienced broker might make your life easier in both the short-term and the long-term. A broker can help to find you the perfect construction loan and can make sure that you’re getting the best interest rate possible.
Brokers generally have partnered lenders, which means that you will have many loan options and lenders to choose from, as opposed to applying through a bank, which will only recommend their own products to you.
How a broker can help you
The role of a mortgage broker is to help you choose the loan that suits your individual needs. There’s no shortage of construction loans to choose from, and comparing them on your own can be overwhelming.
Brokers usually have many lenders that they work with, which means you’ll be getting a variety of loan options to choose from. An experienced broker will be able to help you navigate through these options and find the best fit for your situation. They will also usually be able to assist you in the application process and be on hand to help you negotiate with your lender.
Why are interest rates so important?
An interest rate is a fee that you are charged for borrowing money. An interest rate is generally summed up as a percentage of the total amount of the loan. Generally, if you are approved for any type of loan, you will be paying interest on it.
The Reserve Bank of Australia (RBA) sets the official interest rate of Australia. This is generally one factor that banks take into account when deciding on their lending rates for loans and credit cards.
When interest rates are high, it usually means that the Australian dollar gets stronger. This means that loan payments will usually increase, and your savings, if in an account, will generally earn more interest if they stay where they are. This is subject to the terms of your account, and some accounts may earn more interest compared to others. Generally, higher interest rates encourage saving, as you may earn more interest if your savings are in an account.
A lower interest rate means that the Australian dollar is weaker. When this happens, you may see your loan repayments decrease, unless you are on a fixed-rate loan. You also may see any savings that you have in an account earn less interest. Overall, lower interest rates encourage spending, as you may see the prices of everyday items drop lower than they previously were.
Types of interest rates
There are a few different types of interest rates available when it comes to loans, each with varying pros and cons. However, it is important to know what they are and how they work before you apply for a loan so that you can make sure you’re getting the best loan possible. Two of the main interest rates are:
- Fixed interest rate – A fixed interest rate means that the interest rate of your funding is set at a certain percentage for the entirety of your loan. This means that you will pay the same amount of interest each month, regardless of what the interest rates change to around you.
- Variable interest rate – A variable interest rate varies the amount of interest that you will repay each month. Depending on the market, your provider might raise or lower interest rates.
Types of construction loans
When you are looking for a construction loan, you might find that there are many different types. It’s important to know which type of construction loan will be right for you and your project. Some of the different types of construction loans are:
- Construction to permanent loan – In construction to permanent loans, the money is typically drawn out in stages as the build progresses. Instead of receiving one large sum at the beginning of your build or renovation, you’ll receive what is needed to lay the foundation, and then put up a frame, and so on. These loans are ideal if you have a definitive timeline and construction plan to follow.
- Renovation loan – A renovation loan is for you if you have purchased a property that needs major work completed on it. This type of loan is generally smaller in value, as the cost of renovations is significantly less than those of building from scratch.
- Owner builder construction loan – Owner builder loans are when the borrower also acts in the capacity of the home builder. Most lenders do not allow this type of loan, due to the complexity of construction and the understanding of building codes. Lenders that do allow this loan generally need the borrower to be a licenced builder.
- Construction only loan – This loan is to provide the funds necessary to complete the building of the property and must be paid off in full once the building has been completed. The funds from these loans are dispersed based on the percentage of the project that has been completed, and the borrower is responsible for covering the interest payments on the amount drawn.
- End loan – An end loan is another name for a mortgage and is needed after construction has been completed.
- Off the plan loan – An off the plan loan is where a developer has a pre-approved plan to construct an apartment complex. To ensure a quick sale on completion, the developer will offer the apartments for sale before construction has begun. This means that the balance of the purchase price is paid when construction has been completed.
Where does Tiger Finance come in?
We have helped countless Australians with both good and bad credit ratings to be funded for their dream build. We understand that lending criteria from other lenders are too strict, and can stop you from achieving your goals. That is wrong, and it should not hold you back.
With Tiger Finance, we can help to get you a loan in four easy steps. You will have a free consultation with one of our specialists, and we will tailor-make you a loan. We will negotiate with lenders on your behalf before you are approved.
How we can help
Our finance specialists can help you find the right construction loan for your project. Construction finance is a complicated topic, but we will find a loan that makes your dream project that much easier.
If you are one of the many Australians finding getting a construction loan difficult, Tiger Finance can make the process simple and pain-free. Call us today for your free initial consultation with one of our loan specialists.
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