How do construction loan progress payments work?

Having an approved construction loan does not mean every builder invoice can be paid immediately. The amount, stage and evidence still need to match the lender's requirements.

The sequence is:

Read the builder's invoice beside the payment schedule the lender accepted. Check the stage name, amount due and any variations included. A variation is a change to the original building contract; it may change the price, work or timing.

The schedule might refer to base, frame, lock-up, fixing and completion. Use the descriptions in your own contract rather than assuming a generic stage name proves the work is finished.

In Queensland, QBCC says progress payments should relate to the work completed and follow the contract. Paying more or earlier than the contract requires can reduce home warranty protection. If you disagree with a claim, get advice about the work and payment obligation before authorising it or withholding payment. QBCC progress-payment guidance

An invoice may include the original stage, an agreed upgrade and a separate extra cost. Ask the builder to itemise them so the lender can see what it is being asked to pay.

You also need to know whether a variation was accepted for finance. Signing a change with the builder does not, by itself, increase your loan or the amount approved for that stage.

Suppose the builder's invoice is $101,500, the approved stage amount is $92,000, and the lender has accepted an additional $6,000 for a variation.

This example assumes the $6,000 has not already been included in the $92,000 stage amount. Otherwise, adding it again would overstate the money available.

With 6 days until the invoice is due, the next step is to identify the $3,500 and confirm any inspection requirement. It might be an invoice error or a cost outside the accepted payment. The calculation does not tell you which, and it does not promise the lender can pay within 6 days.

Some of the early building payments may need to come from your savings. Ask the lender when your agreed contribution must be used and what evidence it needs before the first loan payment.

CommBank's construction timeline says a borrower's own contribution must be used before it starts progress payments. Other loan arrangements need their own check. Keep invoices and receipts, and do not assume every amount you pay early can be reimbursed. CommBank construction timeline

For the next claim, start with:

Use the lender's current process. For example, ANZ's handbook calls for a signed Progress Payment Instruction form and the builder's invoice. The first payment can also depend on construction commencement requirements being complete. ANZ construction handbook

If the bank is waiting for one missing item, establish exactly what it is and who needs to provide it. Sending the same incomplete pack again will not resolve that hold.

Sometimes, under the lender's process. ANZ describes reimbursement using a receipt where the borrower has paid the builder directly, for an amount in the payment schedule. Confirm the arrangement before using your savings; do not assume another lender will follow it or that a payment outside the approved schedule will qualify. ANZ payment guidance

There is no single turnaround time for all construction payments. A complete request, a clear invoice and access to the site help, but the lender still needs time for its checks.

Ask the person managing your loan:

NAB's published guide identifies inspections before construction and at the first and final progress claims for registered-builder projects. Other lenders may use different inspection points. Do not copy one lender's schedule onto another loan. NAB building and renovation guide

A lender inspection supports the lending decision. It does not replace your own inspection of the quality and completeness of the work. If you need an independent building inspection, arrange that separately.

Contact the broker or lender managing the existing construction loan. Give them the due date and ask which exact condition remains outstanding. They hold the approval, previous draws and payment instructions needed to deal with the immediate request.

If payment may miss the contractual deadline, speak with the builder and get advice on your obligations. Do not promise that a new broker or another lender can immediately release money under the existing loan.

Work out whether the problem is the paperwork or the funding. A corrected invoice can resolve one; it cannot create extra approved borrowing.

For a genuine shortfall, include the remaining contract stages, changes, rectification and work outside the contract. Compare them with the undrawn loan and cash still available. You can draw on the unused approved loan only when the lender's conditions are met.

Do not sign further changes on the assumption that the bank will increase the loan. If more borrowing is needed, the lender may have to reconsider the repayment and finished property value. If it cannot provide more, another funding plan is needed before the extra cost is committed.

If the disagreement concerns incomplete or defective work, the builder's contractual entitlement and the bank's willingness to lend are separate questions. Ask a building adviser or solicitor about the work and contract. The broker can explain the funding position.

For the full budget and approval sequence, see how construction finance works.

Your drawn loan balance normally increases as construction payments are released. If the rate stays the same, a larger balance means more interest.

For a simple example at 6% a year:

These figures use the balance multiplied by 6%, divided by 12. They illustrate the calculation only; your current rate and repayment schedule may differ. Actual interest depends on daily balances, payment dates, the rate and loan terms. They also exclude fees and any separate mortgage or land loan.

If you are renting during the build, include rent alongside the rising interest. Allow for a delay in moving in as well. The amount due near the start of the build is not the amount your budget must carry near completion.

Interest-only payments cover interest without reducing the debt. Check the repayment that will apply when that period ends, using the full expected loan amount rather than only the first few draws.

The final claim may need more than the last invoice. Ask the lender for its completion checklist early enough to arrange documents and an inspection.

Depending on the lender, state and project, the requirements may include an occupancy or final inspection certificate, building insurance and confirmation that the work matches the approved plans. Westpac requires a satisfactory final inspection and a new building insurance cover note before its final progress payment. Westpac construction guidance

Check any incomplete items or defects with your building adviser before authorising the final claim. A bank inspection or payment is not legal advice that all obligations under the building contract have been satisfied.

Also ask when your repayment changes and what happens to any money left in the loan. CommBank switches to the repayment type selected at application after its final progress payment. Other arrangements can depend on the agreed interest-only term. Use the dates and repayment terms in your own documents. CommBank construction loans