Do you know how Extension Finance actually works?

If you own a home in Griffith and you're planning to add a second storey or extend out the back, your existing mortgage won't cover the build itself.

You'll need construction finance that releases funds in stages as the work progresses, not all at once. That changes how you apply, how interest accrues, and what you'll pay during the building phase. Understanding how progressive drawdowns work and what lenders require before approving each payment will save you from surprises halfway through the project.

Why Standard Home Loans Don't Cover Extensions

A standard home loan releases the full amount at settlement because the property already exists. When you're building an extension, there's nothing physical to secure the loan against until construction is complete. Lenders manage that risk by releasing funds in instalments as specific stages are finished and verified. This structure protects both you and the lender, but it requires different documentation and approval steps compared to refinancing or purchasing an existing property.

Most lenders will also want to see council approval, a fixed price building contract with a registered builder, and evidence that the project adds genuine value to the property. In Griffith, where many homes are heritage-listed or located in the inner south conservation area, development application timelines can stretch longer than in newer suburbs. Factor that into your project schedule before lodging the loan application.

How Progressive Drawdowns Are Released

Funds are released at predetermined stages such as slab down, frame up, lockup, fixing, and practical completion. Each drawdown is triggered by a progress inspection, which the lender arranges to confirm the work matches the stage claimed. You don't pay interest on the full loan amount from day one. Instead, interest is calculated only on the amount drawn down so far, which keeps repayments lower during construction.

Consider a scenario where someone is adding a two-bedroom extension to a character home near Manuka Oval. The total build cost is approved at around $180,000 over six months. At the frame-up stage, they've drawn $90,000. Until the next stage is inspected and released, interest accrues only on that $90,000, not the full approved amount. Once lockup is verified, another $50,000 might be released, and interest adjusts accordingly. That structure keeps costs proportional to the work completed, but it also means your repayments increase each time a new drawdown is approved.

What Lenders Require Before Approving Each Stage

Before releasing funds at each milestone, the lender will require a tax invoice or progress claim from your builder, proof that previous payments have been used as intended, and confirmation from an independent inspector that the stage is complete. Some lenders charge a progressive drawing fee each time funds are released, typically between $150 and $400 per drawdown. Over five or six stages, that can add $1,500 to $2,000 to your total project cost.

If your builder is waiting on payment to order materials or pay sub-contractors like plumbers or electricians, any delay in the inspection or approval process can push out your timeline. Most construction loans include a requirement to commence building within a set period from the disclosure date, often around six months. If council approval drags beyond that window, you may need to reapply or request an extension from the lender.

Interest-Only Repayments During the Build

During construction, most lenders offer interest-only repayment options so you're not paying down principal while also covering rent or your existing mortgage. Once the extension reaches practical completion and you've moved in or started using the space, the loan typically converts to principal and interest repayments over the remaining term.

If you're living in the home during the build, you might already have a mortgage in place. Some lenders will allow you to add the construction component to your existing loan as a separate split, so you're managing one facility instead of two. That can simplify repayments, but it also means your total borrowing capacity needs to accommodate both the existing balance and the additional construction amount.

Fixed Price Contracts and Cost Plus Structures

Most lenders will only approve construction finance against a fixed price building contract with a registered builder. That contract locks in the total cost and provides a clear progress payment schedule tied to defined stages. A cost plus contract, where the builder charges for materials and labour as they go, introduces uncertainty around the final amount. Lenders typically won't approve drawdowns without knowing the total liability upfront.

In areas like Griffith, where renovations often involve working with existing structures that may reveal unexpected issues such as asbestos or outdated wiring, builders sometimes include a contingency allowance within the fixed price contract. That contingency can be drawn on if genuine variations arise, but the base contract amount still needs to be fixed before the loan is approved. If you're considering a renovation that might uncover structural unknowns, discuss how variations will be managed and funded before signing the building contract.

The Loan Application Process for Extension Finance

Applying for construction finance involves more documentation than a standard mortgage. You'll need to provide the fixed price building contract, council plans, development approval, proof of owner-occupied status or investment intent, and an updated valuation that reflects the property's value after the extension is complete. The lender uses that end valuation to determine how much they're willing to lend, not the current pre-construction value.

For someone extending a home in Griffith, the valuer will consider the character of the area, comparable sales of extended homes nearby, and whether the design complements the streetscape. An extension that increases the home from two bedrooms to four in a suburb where families are actively buying will typically add more value than one that over-capitalises for the location. If the end valuation comes in lower than expected, the lender may reduce the approved loan amount, which means you'll need to cover the shortfall from your own funds.

When you're ready to move forward with an extension project, speaking with a broker who understands how construction loan applications are assessed and which lenders suit your situation can save weeks of back-and-forth. Call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions