Construction Loan Calculator

About the Construction Loan Calculator

Construction loans work differently from standard mortgages. Instead of receiving the full loan at closing, funds are disbursed in stages (draws) as the builder completes each phase. You pay interest only on the amount drawn, and the interest cost increases with each draw until the project is complete. Because interest accrues on an ever-growing balance, the total cost during construction can be surprisingly high — often $15,000–$25,000 or more on a typical residential build.

Once construction finishes, a construction-to-permanent (C2P) loan converts automatically into a standard mortgage. A standalone construction loan requires separate permanent financing, adding another set of closing costs. Understanding the total interest during the build phase is critical for budgeting, especially since construction timelines frequently run longer than planned due to weather, permitting delays, or supply-chain issues.

This Construction Loan Calculator models a multi-draw schedule, showing interest-only payments at each stage and the total financing cost through construction and into permanent financing. Enter your project details to see exactly what each draw phase will cost and how your payments transition into a permanent mortgage.

When This Page Helps

Construction interest adds up quickly. On a $400,000 project at 8 % with a 12-month build, you could pay $16,000+ in interest before the first permanent mortgage payment is due. This calculator breaks down costs by draw phase so you can budget accurately and compare construction-to-permanent vs standalone construction loan options.

How to Use the Inputs

1. Enter the total construction loan amount.
2. Set the construction interest rate (typically 1–2 % above standard mortgage rates).
3. Enter the construction period in months (6–18 typical for residential).
4. Enter the number of draws (disbursements) during construction.
5. Optionally enter the permanent mortgage rate for the conversion phase.
6. Review interest-only payments at each draw stage and total construction interest.
7. See the permanent mortgage payment after conversion.

Example Calculation

Tips & Best Practices

• Get a detailed draw schedule from your builder before closing — this determines when funds are released.
• Construction-to-permanent (C2P) loans save on closing costs by converting automatically.
• Budget for a construction contingency fund (10–15 % of the project) for unexpected costs.
• Interest rates on construction loans are typically 1–2 % higher than standard mortgage rates.
• Lock your permanent rate early if your C2P loan offers a lock option — rates can change during a 12-month build.
• Down payments on construction loans are usually 20–25 %, higher than conventional mortgages.

How Construction Draw Schedules Work

A typical residential construction loan has 4–6 draws. The lender sends an inspector to verify that the milestone is complete before releasing funds. For example: Draw 1 at foundation completion (20 %), Draw 2 at framing (25 %), Draw 3 at roofing and rough-ins (25 %), and Draw 4 at completion (30 %).

Construction Interest Costs

Because you're paying interest on an increasing balance, the total construction interest is roughly equal to the average outstanding balance times the rate times the build period. On a $400,000 project, the average balance across 4 equal draws is about $250,000 — so 12 months of interest at 8 % is roughly $20,000.

Construction-to-Permanent vs Two-Close

A single-close C2P loan saves $3,000–$6,000 in duplicate closing costs and removes the risk of not qualifying for permanent financing after the build. However, two-close structures may offer more flexibility, such as choosing a different permanent lender with better rates. Weigh the savings against the risk and flexibility trade-offs.

Frequently Asked Questions

• What is a construction draw?

  A draw is a disbursement of funds from the construction loan. Lenders release money in stages as the builder completes specific milestones (foundation, framing, roofing, etc.). Each draw increases the outstanding balance and therefore the interest-only payment.

• Do I make payments during construction?

  Yes, you make interest-only payments on the amount disbursed so far. In the early stages, when only a small portion has been drawn, payments are relatively small. They increase with each draw as more of the loan is outstanding.

• What is a construction-to-permanent loan?

  A C2P loan is a single-close product that starts as a construction loan and automatically converts to a permanent mortgage when construction is complete. This saves the cost and hassle of two separate closings and potentially two sets of closing costs.

• How long does construction typically take?

  Residential construction typically takes 6–12 months for a standard home and 12–18 months for a custom build. Delays due to weather, permitting, or supply chain issues are common — budget extra time and interest.

• Can I be my own builder with a construction loan?

  Some lenders offer owner-builder construction loans, but requirements are stricter. You typically need construction experience, detailed plans, and a licensed contractor for major trades. Most residential construction loans require a licensed general contractor.

• What down payment is required?

  Construction loans typically require 20–25 % down, higher than conventional mortgages. If you already own the land, its value may count toward the down payment. Some C2P programs accept 10 % down with PMI.