Do you pay a mortgage while a house is being built?

Ask ten owners and builders what the first six months of a build cost them, and most will talk about the contract price. Ask what they paid for living while the job ran, and the answer gets quieter. Rent. Interest on the land. Interest on the first draws. A storage unit. Then the slab pour slips three weeks because of rain and everything runs another month.

This guide walks through what you pay, stage by stage, why the bill climbs, and what to do before a late build turns into a cash flow problem. It suits owner builders, small builders putting up their own house or duplex, and anyone building on land they already own.

Key takeaways

• Most construction loans are interest only during the build, and the interest is calculated on the amount drawn, not the approved limit.
• Repayments rise at every stage. The lowest bill is at the start, the highest is just before completion.
• The real hit is the double housing cost: rent (or your current mortgage) plus the construction loan plus the land loan.
• A late build costs twice: more months of holding costs, and a risk that the loan’s construction period or a fixed price runs out.
• Plan time contingency as well as a materials contingency. Two to three months of holding costs is a sensible buffer.

What do you actually pay during a build?

On a standard bank construction loan, Westpac explains that interest is charged only on the funds already drawn down, and the repayments in the construction period are interest only. The funds go out in instalments as each stage is finished. The builder invoices, the lender may inspect, and the lender pays the builder directly.

So the first repayment is small. It’s interest on the land (if the land is part of the loan) and on the deposit stage. Every time a stage is paid, the balance lifts and so does the monthly bill.

Once the build is complete, the loan normally reverts to principal and interest. Some lenders let you stay on interest only if you arrange it, so ask before you sign, not at handover.

One thing to separate in your head: interest on the build is one cost. Where you live while it’s built is a separate cost, and it’s usually the bigger one.

How do progress draws line up with the monthly bill?

The stages follow the build: slab, frame, lock-up, fixing, completion. In Victoria the stage percentages for a contract covering all stages are set by law. Consumer Affairs Victoria lists base 10%, frame 15%, lock-up 35% and fixing 25%, with a deposit cap of 5% on contracts of $20,000 or more. Other states use their own limits, and many contracts follow a similar shape. We cover the state differences in our guide to how much deposit a builder can take.

Here’s what the balance looks like on an invented $600k build contract using those Victorian percentages, drawn in order:

The shape matters more than the dollars. The lock-up draw is the biggest single lift, and it’s also when the trades are busiest and the build is hardest to put on hold. The drawn balance triples between frame and fixing ($180k to $540k), so the interest bill roughly triples too, with no change in what you’ve signed.

What’s the double housing cost nobody budgets?

If you’re doing a knockdown rebuild, you’re paying for a roof you don’t live under for the whole job. That’s rent, plus the construction loan interest, plus whatever is still owing on the existing home or land.

Example: a couple building on a block they own in Ballarat. They knock down the old house and rent nearby for 10 months. Rent is $2,600 a month. They still have a $300k balance on the land loan and are drawing on a $600k construction contract. In month one they pay rent and land loan interest. By month eight they’re paying rent plus interest on $540k. Then the frame stage slips a month waiting for trusses. That’s one extra month of rent plus peak interest, and nobody budgeted it.

Rent alone over 10 months is $26k. Add a one month slip and it’s $28,600 before a cent of interest. On a build with a tight contingency, that gap comes from somewhere. It’s the personal side of the same cash flow squeeze small builders feel between progress claims, and it’s why the cost of a duplex or any build should include the months, not just the contract.

If you’re building a duplex or townhouse as an investment, you’re not paying rent but you’re paying land holding costs and interest with no income until completion. Same rule: the longer it takes, the more it costs.

What happens when the build runs late?

Delays stack. Here’s the sequence builders and owner builders tend to hit:

1. Weather or a supplier delay pushes a stage out a few weeks.
2. Rent and interest keep running. Each extra month costs the same as the one before.
3. A fixed price allowance runs out, or a lender’s construction period gets close. Ask your lender what their construction period is. Westpac’s page doesn’t state a fixed maximum, and it advises thinking about delays when you choose the loan term, so rules differ lender to lender.
4. A variation or a price rise lands on top. See what to do when a client won’t pay for a variation if you’re on the builder’s side.
5. The final draw is held until a satisfactory inspection, so the last payment can’t come early to rescue the budget.

If the build has actually stopped, not just slipped, that’s a different problem. Our guide to finishing a stalled build covers the cost to complete and restarting trades.

What should you budget for time, not just materials?

Contingency usually means 10% on the build. Add a second line: holding costs for the schedule. A simple way to do it:

• Add up your monthly non-build costs: rent or your current mortgage, land loan interest, utilities on two properties, storage.
• Multiply by the planned months, then add two or three extra months as a buffer.
• Add the interest on the peak balance for those extra months, because the last months are the dearest ones.
• Put the total in the budget as its own line, not hidden in “contingency”.

Then work out your usable equity in the property you already own. The construction equity calculator gives you a funding gap estimate and planning LVR bands in a couple of minutes, which is a better starting point than guessing.

What are your options when holding costs outrun the budget?

Before the gap opens up, you have more choices than after. In rough order:

• Ask the lender early about extending the construction period or the interest only term. Do it before the deadline, not on the day.
• Ask the builder for a realistic schedule in writing and what the contract says about delay, so you know what’s recoverable.
• Cut the optional spend such as landscaping, fencing and floor coverings, which can wait until after handover.
• Use equity in property you already own. A short term loan secured against your home, an investment property or land with equity can cover rent, interest or a stage payment while the build finishes. Our loans are secured against property you or a guarantor already own, never against the unfinished building or progress draws.
• Have the exit worked out first. That’s a sale, a refinance after practical completion, or a payout from another source. See how builders plan the exit.

For more on how stage funding works for a small project, see our pages on construction completion loans and duplex and townhouse construction finance.

Running out of runway on a stage? Check your options before the next draw is due, not after.

What’s changing for Victorian builders and owners?

If you’re building in Victoria, there’s a date worth knowing. The Domestic Building Contracts Amendment Bill 2025 passed Parliament, and Consumer Affairs Victoria says deposit limits, progress payment stages and progress payment limits will be set in regulations. It says the laws take effect “by 1 December 2026”, and that until then the current laws stay the same.

Contracts signed after the change may have different stage splits and deposits, which changes how your draws, and so your interest, line up. Check the final regulations on the Consumer Affairs Victoria site or with the Victorian Building Authority before you lock in a payment schedule. Other states are not affected by this change.

Keep the build moving while you wait

A build is a long run of stages, and you pay for time as well as bricks. If you’ve priced the contract and found a gap in the holding costs, the rent, or a stage that lands before the next draw, it’s worth knowing your options before the job is stuck.

Enquiring takes about 60 seconds, and your credit file isn’t touched just for asking, so there’s no credit check when you first enquire. Your details go to one lending specialist, not a pile of lenders, so the phone stays quiet. A real person who understands building will look at your situation and call you back.

One ask: fill the form in accurately. What the money is for, the value of the property you own and what’s owing on it. That’s how we match the right option first time.

Get the build funded →