A building loan is a version of a home loan that you can use if, for example, you intend to rebuild something in the home. Earlier before this type of loan appeared, it was necessary to guess exactly what it would cost to carry out the redevelopment. This is something that is notoriously difficult to estimate. This is where the building loan comes in and helps.
If you take out a building loan, you can instead withdraw money continuously while you are rebuilding.
When the construction is completed, the entire loan is summed up and goes into a regular mortgage. If you had taken out a regular mortgage loan of USD 1 million and the changes only cost USD 750,000, you would have had money that would either be repaid directly or a loan that was larger than needed. With a building loan you do not have to do this as you will only have taken out a loan of USD 750,000 in the end. Of course, there is a maximum limit on how large the loan can be that you and your lender agree on.
A building loan is thus only available during the time the construction itself takes.
After that, it becomes a mortgage with the house as collateral. So if you are going to rebuild and need to borrow money this can be an interesting alternative.
Building loans are one of those loan words used for several different things depending on who you ask. We mainly use it here for some form of redevelopment of an accommodation you already own. Others use building loans when talking about a loan to build a brand new house. Here we are talking instead about building credit which you can read more about if you follow the link here before.