How do you finance a knockdown rebuild?

Loan approval, permission to demolish and approval to release the first payment are separate checks. Get the sequence in writing before work starts.

The mortgage stays in place when the house comes down. Include it in the new loan plan, along with any fixed-rate commitments or other property securing the debt.

Compare your current lender with alternatives that accept the demolition and build. For example, ANZ’s handbook sets out how an existing land loan can fit into its construction finance. Check the arrangement for your own loan.

I put the current mortgage and every cost around the contract into one budget:

• current mortgage or land purchase
• demolition, disconnection and site clearing
• the fixed-price building contract
• design, engineering and council approvals
• soil, retaining, drainage and service work outside the contract
• driveway, fencing, landscaping, window coverings and appliances
• rent, storage and moving twice
• a separate cash buffer for delays and variations

Do not use the entire cash deposit on the property purchase and assume the later build will look after itself. The lender may require your agreed contribution to be used before it releases construction money.

Even if the loan covers demolition, you may need to pay the contractor before the bank releases that money. Check payment dates for demolition, disconnections, design fees and deposits, then confirm which costs need to come from your savings.

Our progress-payment guide explains what needs to be ready before the lender pays each building stage.

The finished value does not have to equal the current value plus every dollar spent. If the bank's accepted value is lower than the total project cost, you may need more cash even if you can afford the repayments.

Lenders can use different valuation instructions and demolition requirements. I compare those requirements alongside the rate to check which arrangement fits the whole project.

Your land’s value may help support the loan, but the lender still checks the existing debt, total borrowing and affordability. You may need cash for early costs and your agreed contribution. Our home equity guide explains what you may be able to borrow.

You may be paying rent while the bank releases the construction loan in stages. The interest amount can start lower and rise after each payment to the builder.

I would test 3 periods separately:

• the time between moving out and the first progress payment
• rent plus increasing construction interest during the build
• the full home loan repayment after handover

Also leave room for a delay. Aaron and Rebecca expected to rent for about 8 months at $650 a week. One extra month would have meant another $2,800 or so before storage, moving or construction interest.

If an existing loan stays separate, include those repayments too. Interest-only payments do not reduce the loan balance; use the repayment calculator to check repayments after completion.

Check the lease, the builder’s latest schedule and the lender’s construction deadlines if the build is delayed. Contact the lender early if repayments may become difficult; repayment assistance does not itself fund the remaining build.

In Brisbane, heritage and character controls can affect what you may demolish. Check planning permissions, service disconnections, waste and asbestos requirements, and insurance for demolition and construction. Our Brisbane building guide covers the local checks.

Confirm the finance is ready before agreeing to the builder's start date. Tell your broker and lender if the price, builder or design changes after approval.

Client examples are based on real situations. Names and identifying details have been changed.