Residential vs construction loan

By Nila Sweeney

Q. I was wondering if there was any difference in current residential loan and construction loan rates as well as the differences between the two. For example,do construction loans also have fixed and variable style loans?

A. The short answer is ‘yes’, construction loans can provide either the fixed or variable option. It depends on the lender and the loan product. Basically, it’s a question of research. Most lenders should offer you the same or similar interest rates and types of loans for construction loans as for residential loans. The main difference is that the money is drawn down in stages as it is needed – a valuable feature. The benefit of drawing down the loan in multiple stages is that it saves interest. This is because interest is calculated on the outstanding balance, not the maximum loan amount which has been agreed to.

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