Building while paying rent or a mortgage? Here's what you need to know

One of the most common questions I get from people building a new home is, “How do I manage the payments while I’m still paying rent (or my current mortgage)?”

It’s a really fair concern, especially under a traditional build contract, where payments are made to the builder throughout the build (usually across five or six stages). The good news is, there are a few options available to make things more manageable during this time.

Option 1: Interest-only repayments during the build

Most banks will allow interest-only repayments, usually for up to 12 months. That means you’re only paying the interest on the loan as it’s drawn down, not the full principal and interest.

This can make a big difference if you’re already paying rent or servicing a home loan elsewhere. 

Option 2: Capitalising the interest

Some banks may allow you to capitalise the interest, meaning you don’t make any repayments during the build. Instead, the interest is added to the loan balance, and you start repayments once the home is complete.

This is usually only available if your LVR (Loan-to-value ratio) is under 80%, and not every bank offers it. It’s a great option if cashflow is tight during the build period, but keep in mind your final loan balance will be slightly higher at the end of the build.

Option 3: Consider a turnkey build

If you’re concerned about juggling rent and construction payments, a turnkey build might be worth considering. This is where the builder funds the construction themselves, and you simply pay a deposit upfront and the full balance on completion.

There are no loan repayments during the build, which can be a huge help if you’re renting. Just be aware that turnkey homes are generally more expensive than traditional build contracts, as the builder needs to factor in their own funding costs, which are typically at commercial lending rates.

What we do at Colab

At Colab, we help clients work through all the available options, including:

• Structuring interest-only or capitalised interest lending during the build

• Identifying which banks offer which options (they do vary!)

• Presenting your application to show how you’ll manage both rent and loan obligations

• Aligning your finance with your builder’s drawdown schedule to avoid delays

We work closely with both clients and builders to make the process as smooth and stress-free as possible.

Need help figuring it all out?

If you're unsure what your options are or how it all works, you're not alone - every build is different, and the finance side can get complex.

Feel free to get in touch, or if you’d like to learn more, you can download our handy guide to construction lending here.

At Colab, we’ll hold your hand through the process and help you every step of the way - from your very first question to the day you move in.