How Construction Loan Progress Payments Work in Australia
When building a property, one of the most common questions borrowers ask is how construction loan progress payments actually work. Unlike standard home or commercial loans, construction finance is structured around the stages of the build — which can feel unfamiliar if you haven’t been through the process before.
Understanding how progress payments operate can help you plan your cash flow, avoid delays, and work more confidently with your lender and builder.
What Are Construction Loan Progress Payments?
A construction loan is released in stages, rather than as a single lump sum. These staged releases are known as progress payments.
Instead of receiving the full loan amount upfront, funds are drawn down gradually as the construction progresses. This approach protects both the borrower and the lender by ensuring payments align with completed work.
Typical Stages of Progress Payments
While the exact stages can vary depending on the lender and project type, most construction loans in Australia follow a structure similar to this:
- Deposit or Slab Stage — Covers site preparation and laying the foundation or slab.
- Frame Stage — Released once the structural framework is completed.
- Lock-Up Stage — Paid when external walls, roofing, and windows are in place.
- Fit-Out or Fixing Stage — Covers internal fittings such as plumbing, cabinetry, and electrical work.
- Completion Stage — Final payment once construction is complete and inspected.
Each stage requires an invoice from the builder and, in some cases, a valuation or inspection before funds are released.
How Interest Is Calculated During Construction
One advantage of progress payments is that interest is charged only on the amount drawn, not the total approved loan.
For example, if only 30% of the loan has been released, interest is calculated on that portion alone. This helps keep repayments lower during the construction phase.
Most construction loans operate on interest-only repayments while the build is underway, before switching to principal and interest once construction is complete.
What Lenders Require Before Releasing Payments
To approve each progress payment, lenders typically ask for:
- A builder’s invoice for the completed stage
- Council-approved building plans
- A fixed-price building contract (in most cases)
- Builder’s insurance and licence details
Some lenders may also conduct a valuation or inspection before releasing the first or final payment.
Common Issues That Can Delay Progress Payments
Delays can occur if:
- Construction stages are not clearly defined
- Invoices don’t match the agreed payment schedule
- Documentation is incomplete
- Variations are made to the original contract
Working with a lending specialist who understands construction finance can help minimise these issues and keep your project moving smoothly.
Are Progress Payments the Same for Commercial and Residential Builds?
The structure is similar, but commercial construction loans often involve:
- Larger loan amounts
- More complex approval criteria
- Additional feasibility or cash flow assessments
Each lender has different risk appetites, which is why construction finance is usually tailored to the specific project and borrower.
Getting the Right Construction Finance Advice
Construction finance can be more complex than standard lending, especially when projects involve multiple stages, contractors, or non-standard builds.
Speaking with a lending specialist who regularly structures construction loans can help ensure progress payments are set up correctly from the start and aligned with your project timeline.
If you’re planning a build and want guidance on structuring construction finance solutions, you can explore your options with a specialist at Aus Wealth.
