Construction Loan Calculator
Estimate the interest-only payments on a construction loan as money is drawn during the build, the total interest, and the mortgage payment once the loan converts to permanent.
Results
| Item | Value |
|---|
Monthly interest during the build
| Month | Drawn so far | Interest payment |
|---|
Quick Answer
During construction you usually pay only interest, and only on the money drawn so far. A $400,000 loan at 8%, drawn evenly over 12 months, starts at $222.22 a month and ends at $2,666.67, with $17,333.33 of interest during the build. Converted to a 30-year mortgage at 6.75%, the payment is $2,594.39.
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Table of Contents
- Construction Loan Calculator
- Quick Answer
- Related Calculators
- How This Construction Loan Calculator Works
- How to Use the Construction Loan Calculator
- Core Formulas
- Key Terms
- Worked Example
- Real-Life Examples
- Construction Loan vs Mortgage
- Build Interest per $100,000
- What Affects Construction Loan Costs
- Construction-to-Permanent vs Construction-Only
- Common Mistakes to Avoid
- Frequently Asked Questions
- References & Sources
How This Construction Loan Calculator Works
Enter the total amount you will borrow to build, the interest rate during construction and how many months the build will take. The calculator spreads the money over the build in equal monthly draws and charges interest only on what has been drawn so far. It shows each month's interest payment, the total interest during the build and, once the house is finished, the payment on a permanent mortgage for the full amount.
Quick explanation: construction loan payments start small and grow as more money is paid out.
- During the build: interest-only payments on the amount drawn.
- After the build: the loan converts to, or is replaced by, a regular mortgage.
- Total cost: build-time interest plus the permanent loan's interest.
How to Use the Construction Loan Calculator
- Enter the total construction loan amount.
- Enter the interest rate during construction and the build time in months.
- Enter the permanent mortgage rate and term.
- Press Calculate.
- Read the monthly interest payments, the build interest and the permanent payment.
Core Formulas
- Monthly draw: loan ÷ number of months
- Drawn by month i: i × monthly draw
- Interest in month i: drawn by month i × rate ÷ 12
- Total build interest: sum of the monthly interest payments
- Permanent payment: L × r ÷ (1 − (1 + r)^−n)
Key Terms
- Draw: a payment from the loan to the builder at a stage of construction.
- Construction-to-permanent loan: one loan that covers the build and then becomes a mortgage.
- Interest-only payment: a payment that covers only interest, not principal.
- Conversion: the switch from the construction phase to regular mortgage payments.
- Contingency: extra money set aside for cost overruns.
Worked Example
You borrow $250,000 to build over 9 months at 7.5%, then convert to a 15-year mortgage at 6.5%.
- Monthly draw = $250,000 ÷ 9 = $27,777.78
- First month interest = $173.61; last month = $1,562.50
- Total interest during the build = $7,812.50
- 15-year mortgage payment after the build = $2,177.77
Real-Life Examples
- Budgeting the build: a $400,000, 12-month build at 8% has $17,333.33 of interest.
- Cash flow: payments rise from $222.22 to $2,666.67 as the money is drawn.
- Delays: each extra month at full draw costs about $2,666.67 in interest.
- After the build: a 30-year mortgage at 6.75% on $400,000 is $2,594.39 a month.
Construction Loan vs Mortgage
- Construction loan: short term, paid out in draws, interest-only payments.
- Mortgage: long term, paid out in full at closing, principal and interest payments.
- Construction-to-permanent: combines both in one loan with one closing.
Build Interest per $100,000
| Rate | 6 months | 9 months | 12 months | 18 months |
|---|---|---|---|---|
| 6% | $1,750.00 | $2,500.00 | $3,250.00 | $4,750.00 |
| 7% | $2,041.67 | $2,916.67 | $3,791.67 | $5,541.67 |
| 8% | $2,333.33 | $3,333.33 | $4,333.33 | $6,333.33 |
| 9% | $2,625.00 | $3,750.00 | $4,875.00 | $7,125.00 |
| 10% | $2,916.67 | $4,166.67 | $5,416.67 | $7,916.67 |
What Affects Construction Loan Costs
- Draw schedule: money paid out early, such as for land or foundations, raises interest sooner.
- Build delays: every extra month adds a full interest payment on a large balance.
- Rates: construction rates are often higher than mortgage rates.
- One or two closings: a construction-to-permanent loan closes once; separate loans mean two sets of closing costs.
Construction-to-Permanent vs Construction-Only
A construction-to-permanent loan, sometimes called a single-close loan, pays for the build and then turns into a regular mortgage when the house is finished. You pay interest during construction, and after conversion you start paying principal and interest every month. One closing keeps fees down and locks in your plan.
A construction-only loan covers just the build. When it ends, you pay it off, usually with a new mortgage. This can let you shop for a better mortgage rate later, but you face a second approval and a second set of closing costs, and rates could rise in the meantime. Use the permanent rate field here to compare both paths.
Common Mistakes to Avoid
- Budgeting for the first payment only. Payments grow every month as more is drawn.
- Ignoring delays. Weather and supply problems add months of interest.
- Forgetting closing costs. Two-closing loans have two sets of fees.
- Leaving no contingency. Builds often cost more than planned.
- Assuming the permanent rate is fixed now. Check whether your rate is locked.
Frequently Asked Questions
During the build you usually pay interest only, on the money drawn so far.
Each month, multiply the amount drawn by the annual rate and divide by 12.
The loan converts to a regular mortgage or is paid off with a new one, and principal and interest payments begin.
Often, because the lender takes more risk while the home is being built.
Usually as long as the build, often up to about a year or so.
The plan for when money is paid to the builder, usually tied to stages of work.
It saves a second closing, but a two-step loan may let you shop for a mortgage later.
Usually not. Payments during the build are typically interest only.
You keep paying interest, and the lender may need to extend the loan.
No. Add them to your budget separately.
Yes, if the money is drawn in stages with interest-only payments.
Because the balance you owe grows as each draw is paid out.
References & Sources
| Source | Used For | Link |
|---|---|---|
| Freddie Mac, Loan options for building your home | Interest-only payments during construction, then principal and interest after conversion. | https://myhome.freddiemac.com/blog/homebuying/loan-options-building-your-home |