A knockdown rebuild lets you stay in the location you love while getting a brand-new home. It avoids the stamp duty and selling costs of moving. But the finance has a few extra steps.
How the finance works
A knockdown rebuild is usually funded with a construction loan, using your existing land (and any equity) as security.
- Valuation: The lender values your land and the "as if complete" new home.
- Approval: Based on the build contract, plans and your serviceability.
- Demolition: Paid from your funds or included in the loan, depending on the lender.
- Progress payments: Funds released as the build progresses.
- Completion: Final payment and the loan converts to a standard home loan.
How much can you borrow?
Lenders usually lend up to 80% of the "as if complete" value without LMI, sometimes more with LMI.
Example: - Current land value: $900,000 - Existing loan: $250,000 - Build cost: $550,000 - "As if complete" value: $1,550,000 - Total loan needed: $800,000 (plus costs) - LVR on completion value: about 52%
Costs to budget for
- Demolition
- Site costs (soil tests, rock, slope, retaining)
- Connection and disconnection of services
- Council and certification fees
- Rent while you build, often 12 months or more
- Contingency for variations
Serviceability while renting
During construction, you'll be paying rent plus interest on the drawn loan. Lenders assess whether you can afford both. Interest is usually charged only on funds drawn, so it starts low.
Tax and duty benefits
- No stamp duty on a new purchase, because you're not buying
- No agent fees or selling costs
- First Home Owner Grant doesn't usually apply, since you already own
Common issues
- Low "as if complete" valuation if the new home is overcapitalised for the area
- Builder delays extending your rental period
- Variations that exceed your approved budget
Frequently asked questions
Can I get a construction loan with an existing mortgage?
Yes. The construction loan usually refinances your existing loan as part of the facility.
Do I need to pay for demolition upfront?
It depends on the lender. Some include it in the progress payments.
How long does a knockdown rebuild take?
Often 12 to 18 months from approval to move-in, depending on council and the builder.
Considering a knockdown rebuild? Call Finfident on 02 6416 2142, or Call, Text or WhatsApp 0424 545 654. We'll check the valuation and structure the construction loan properly.
Want to know if this applies to you?
Talk it through with a Finfident broker. It's free and there's no obligation.
