A construction loan allows you to draw amounts for each building stage of your property. With other type of home loans, you usually get the borrowed money as a lump sum and immediately have to pay repayments. With a construction loan, you start with interest only repayments during the construction period. When the building is complete, your loan will change to principal and interest repayments.

Advantages:

• You can make additional payments
• Interest savings
• Pay interest only during the construction period

Disadvantages:

• Runs on variable interest rate
• Not flexible, it requires a fixed amount before the construction