Construction Loan Calculator
See what you pay each month while the build draws down the loan, and what the payment becomes when it converts.
First Interest-Only Payment
$222.22
Final Interest-Only Payment
$2,666.67
Total Construction Interest
$17,333.33
Construction Period
12 months
Permanent Monthly Payment
$2,528.27
How it works
A construction loan is not handed over in one lump. The lender releases it in draws as work is completed and inspected: footings, framing, roof, finishes. You pay interest only on what has been drawn so far, so the monthly payment starts small and grows as the house goes up.
Choose equal monthly draws, or type the share of the loan drawn each month if your builder has a draw schedule. Each month's interest is the balance drawn to date times the monthly rate. Adding those months gives the total interest you pay during construction, money that reduces no principal.
When the build is finished, the full amount drawn becomes an ordinary mortgage that you repay with principal and interest over the permanent term, at the permanent rate. That payment can be higher or lower than the last interest-only payment, depending on the two rates and the permanent term.
Formula
r = construction rate ÷ 12 draw_k = loan × p_k ÷ 100 (p_k = 100 ÷ months for equal draws) balance_k = draw_1 + … + draw_k interest payment_k = balance_k × r total construction interest = Σ interest payment_k permanent payment = L × i × (1 + i)^n ÷ ((1 + i)^n − 1), L = final balance drawn, i = perm rate ÷ 12, n = years × 12
Example
A $400,000 construction loan at 8% drawn in 12 equal monthly draws of $33,333.33: the first month's interest-only payment is $222.22, the twelfth is $2,666.67 on the full balance, and construction interest totals $17,333.33 (the full balance's interest for 6.5 months).
When it converts to a 30-year loan at 6.5%, the payment becomes $2,528.27 a month.
Assumptions and limitations
- The whole loan is drawn by the end of construction and becomes the permanent balance. If you draw less, the interest and the permanent payment will be lower.
- Each draw is made at the start of its month and interest is paid monthly at a fixed construction rate. Many construction loans float with the prime rate, and some pay interest from a reserve built into the loan instead of from your pocket.
- Origination fees, inspection and draw fees, title updates and the cost of converting to the permanent loan are not included.
- This is an estimate for planning, not financial, tax or legal advice. Your lender's draw schedule and loan estimate govern.
Frequently asked questions
Why is my construction interest less than a full year's interest on the loan?
Because most of the money is drawn late. With equal draws over 12 months, the average balance outstanding is a little over half the loan, so the interest is about 6.5 months of interest on the full amount rather than 12.
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