What happens to your construction loan if the builder collapses?

There may be a way to finish the home. Before considering another loan, I would establish how much has been paid, what remains available and the full cost of completing the work. The insurance decision and the lender's decision then need to fit the same plan.

If an invoice is due, work has stopped or you have received an insolvency notice, tell your lender and solicitor now. You do not need to wait for a replacement quote to report the problem. Avoid signing a termination or replacement contract before checking the legal and insurance requirements.

Start with the people who can deal with the immediate problem. Your existing lender controls the construction funds; your solicitor advises on the contract; the insurer or state scheme decides any claim. A broker can help organise the finance questions but cannot make those decisions for them.

For a Queensland non-completion situation, QBCC advises owners to secure the site, tell the bank in writing not to make further payments to the contractor, and avoid paying other parties such as subcontractors. It also says not to appoint another contractor or do work yourself without QBCC approval because this can affect a claim. Get specific instructions for your situation. QBCC: Non-completion of building work.

That instruction concerns payments to the failed contractor. It does not mean you can stop making your mortgage repayments. Ask the lender what remains payable and whether you need hardship assistance.

A delayed build, a payment dispute and a company in liquidation are not the same event. Keep any formal notice, contact details for an appointed administrator or liquidator, and the date you first became aware of the problem.

Ask your solicitor how the builder's status affects the contract and whether a termination notice is required. Do not assume a news report or unanswered phone call has ended the agreement.

In Queensland, the lawful end of the contract matters for a non-completion claim. QBCC identifies situations where a separate termination is not required, as well as situations where it is. The right step depends on the builder's legal and licence status. Have your solicitor check it rather than using a generic termination letter. QBCC: Contract termination and non-completion.

Put the loan records beside the building records. An app showing an approved loan limit does not establish that all of it is available for the next builder.

Ask the lender for the payment history and the undrawn balance: the portion approved but not yet paid out. Then ask what conditions apply to any further release.

The first funding comparison is:

Full cost to finish, less lender funds confirmed for the revised build, less other money confirmed and available.

Any amount left over still needs a funding solution. If the figures balance, the lender and insurer may still need to approve the arrangements before work restarts.

The amount not yet paid under the old building contract may differ from the amount undrawn on your loan. Your own contribution, previous variations and payments can explain the difference.

That distinction matters to both the finance review and an insurance assessment. Provide the original contract, approved variations and all payment records rather than trying to reconstruct the balance from the builder's last invoice.

The original builder and contract were part of the proposal the lender approved. Replacing them changes what the bank is being asked to fund.

Ask the lender's construction team what it needs to consider the revised plan. This may include the current condition of the property, a replacement contract, the cost to complete, a revised payment schedule and a valuation. If more borrowing is needed, the lender also needs to decide whether the larger loan is affordable and acceptable.

There is no reason to assume an unused approval remains available on exactly the old terms. Get the lender's requirements in writing before committing to the new builder's payment dates.

A higher quote does not automatically increase the approved loan. For example, CommBank's published construction guide treats a request for additional borrowing after going over budget as a new construction-loan application, with updated documents and potentially further inspections or valuations. That is one lender's published process; check your own lender's requirements. CommBank: Construction loans guide.

We can help present the finance information clearly. We cannot promise that the bank will approve more money, release funds immediately or accept a different builder.

Ask the lender what interest and repayments apply to the existing debt and how long any construction-period arrangement can continue. A pause in building work is not an agreed repayment pause.

If rent and loan payments are becoming difficult, contact the lender's hardship team early. It may be able to consider a temporary repayment arrangement. Free financial counselling is also available through the National Debt Helpline on 1800 007 007. Moneysmart: Problems paying your mortgage.

It may help with an eligible non-completion claim, but it is not a promise that every extra cost will be paid. The contract, the reason it ended, the work, payments, cover and deadlines all matter.

For work already started, QBCC generally assesses the extra completion cost against the funds you still hold, or should still hold, under the contract. It does not simply treat the replacement quote minus the undrawn loan balance as the insured loss. If work never started, different deposit-refund rules apply. QBCC: Home warranty for non-completion claims.

This is why I would keep the insurance calculation and the loan calculation separate until the decisions are clear. A finance shortfall can exist even where a claim is accepted.

QBCC's published non-completion time limits distinguish between work that has and has not started:

Ask QBCC and your solicitor to establish the relevant dates now. These time limits are not instructions to wait before lodging. QBCC: Time limits for cover and claims.

For a standard single-home situation before completion, QBCC publishes maximum cover of $200k, or $300k with optional additional cover. Eligible accommodation, removal and storage costs sit within the total and have their own limits. Other property types can have different limits. The amount paid depends on the accepted claim and may be below these maximum entitlements. QBCC: Maximum home warranty entitlements.

Ask for the decision in writing, including your contribution, any excluded work and how payments or the completion process will be managed. Do not treat the maximum cover as money available to add to the construction loan.

Use the scheme or insurer for the state or territory where the work is located. The Queensland claim triggers, deadlines and limits above do not carry across to another jurisdiction.

Have the cover certificate and contract ready. Use the scheme's guidance to check the cover for your particular project; the link alone does not establish eligibility.

First confirm who is managing the completion process and whether insurer or scheme approval is needed. Then establish the work remaining and obtain the required scope, reports and pricing.

A replacement quote needs to distinguish between completing unfinished work, rectifying problems and new work you have chosen to add. Ask what remains excluded and what the builder needs before committing to the price and start date.

Do not assume the new price will match the unpaid portion of the original contract. The quote may include inspections, repairs, site setup and work needed before the next stage can proceed. Ask the building professional to explain each item; the broker's job is to assess the funding consequence.

I would then put these documents to the lender together:

The lender decides whether the finance can continue on that basis. The solicitor advises on the contract. The builder and appropriate building professionals deal with the work, inspections and certification. Agree on the sequence before authorising a restart.

Start by checking the current lender's options. It already holds the construction loan and can tell you whether the existing funding can be used, whether an increase can be considered and what remains missing.

If extra cash or an accepted insurance contribution closes part of the gap, confirm when it can be used and for which work. Keep essential living costs separate so finishing the next stage does not leave you unable to meet the repayments.

If the figures still do not work, discuss the options before taking on another commitment. A revised scope may need the builder, solicitor, lender and insurer to agree. Some items cannot simply be removed while still delivering an acceptable completed home.

Refinancing may be worth investigating in some cases, but another lender would need to accept the unfinished property and the completion proposal. Do not cancel the existing loan or rely on an unassessed refinance to pay the next invoice. A later review after completion may be more practical.