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ok makes sense, I was confusing myself! Thanks for the replies all.

I guess the issue I am having trouble getting my head around is the equity that exists in the current house/land and how that is used for the future house. In my example there currently is 250k in equity, but if the house was demolished there would only be 100k in equity. So how does the bank...

Sorry just had another thought on this. Tobe on your example to the scenario you deducted the existing equity 250k from the cost (700k construction cost, 560k at 80% LVR a then minus 250k current equity = 310k for build). My question though is that equity is based on the current house and...

Hi Toby, That makes perfect sense. So in this scenario the LVR would be 85.71% so a small amount of LMI would be payable. Just out of our curiosity though when would the end value be worse than the construction cost?

Hey All, I'm curious as to how lenders finance a knockdown rebuild. Scenario: Property Valued at 500k (350k land, 150k house). Current Loan = 250k Build Contract = 350k Finished Valuation = 850k Do they base on end valuation? So LVR would be 600kloan/850 valuation = 76.54 LVR Or...