Construction Loan Calculator
Estimate your interest-only payments during the construction phase and your fully amortized payment after conversion to a permanent mortgage.
Results
Visualization
How It Works
A construction loan calculator helps you estimate costs when building a new home. Construction loans work differently from standard mortgages: you pay interest only on funds disbursed during the build phase, then convert to a permanent mortgage. Understanding both phases helps you budget for the full cost of building.
The Formula
Variables
- Balance — Current drawn amount (increases with each draw disbursement)
- P — Total loan amount at conversion to permanent mortgage
- r — Monthly interest rate for the permanent mortgage
- n — Total number of monthly payments on permanent mortgage
Worked Example
For a $450,000 project with $112,500 down (25%), the $337,500 loan draws in 5 stages over 12 months. At 7.5% construction rate, average interest-only payments are about $1,055/month. After conversion to a 30-year permanent mortgage at 6.75%, the monthly P&I payment becomes $2,189.
Practical Tips
- Most construction loans require 20-25% down payment, higher than conventional mortgages.
- A construction-to-permanent (one-time close) loan saves you from paying two sets of closing costs.
- Interest-only payments during construction are based only on the amount drawn, not the full loan amount.
- Build in a 10-15% contingency budget for unexpected construction cost overruns.
- Lock your permanent rate at closing if possible to protect against rate increases during a long build.
Frequently Asked Questions
How does a construction loan differ from a regular mortgage?
A construction loan funds a home being built, disbursing money in stages (draws) as construction progresses. During the build phase, you only pay interest on what has been drawn. Once construction is complete, the loan converts to a standard amortizing mortgage or you must refinance.
What is a construction-to-permanent loan?
A construction-to-permanent (or one-time close) loan combines the construction loan and permanent mortgage into one loan with one closing. This avoids the cost and hassle of two separate closings and protects you if rates rise during construction.
Why are construction loan rates higher?
Construction loans carry more risk for lenders because the home does not yet exist as collateral. Rates are typically 1-2% higher than conventional mortgage rates, and most are variable rate during the construction phase.
What are draws in a construction loan?
Draws are scheduled disbursements of loan funds as construction milestones are reached (e.g., foundation, framing, roofing). The lender sends an inspector to verify work before releasing each draw. You only pay interest on funds that have been disbursed.
Can I act as my own general contractor?
Some lenders allow owner-builders, but many require a licensed general contractor. Acting as your own GC can save 10-20% on construction costs but makes it harder to qualify for financing and carries significant risk.