A construction loan is a short-term variable home loan specifically for covering the costs of a major renovation or knocking down an existing property and building a new home. Construction loans are short-term and are interest-only during the construction period to reduce your repayments during that time.
Most construction loans pay the bills directly to your builder in stages as the renovation or rebuild progresses. The advantage over a regular home loan is you only pay interest on the amount you draw down or pay to the builder, not on the entire loan amount. And let’s face it, building is stressful enough without added cashflow issues so the less you’re paying during the construction process, the better.