Construction Loan Calculator

Construction loans are short-term, interest-only loans where funds are disbursed in stages (called draws) as construction milestones are completed. Interest is charged only on the amount drawn, not the full approved loan amount.

Monthly interest payment formula: Monthly Interest = Outstanding Draw Balance × (Annual Rate ÷ 12)

Total interest during construction: Total Interest = Σ [Draw Balance(month) × Monthly Rate] — summed over all months

Because the balance grows with each draw, a simulation (month-by-month) gives the most accurate total interest cost.

Typical draw schedule (percentage of total loan):

• Draw 1 (foundation complete): 10–20%
• Draw 2 (framing complete): 20–25%
• Draw 3 (rough-in complete: plumbing, electrical, HVAC): 15–20%
• Draw 4 (drywall, insulation): 10–15%
• Draw 5 (exterior finish, windows): 10–15%
• Draw 6 (interior finish, fixtures): 10–15%
• Final draw (punch-list complete, certificate of occupancy): 5–10%

What each variable means:

• Construction period: typically 6–18 months. Lender requires a hard completion deadline.
• Interest reserve: some lenders include an interest reserve in the loan amount so no out-of-pocket payments are required during construction. This amount is part of the total loan.
• Conversion to permanent loan: “construction-to-perm” loans convert automatically to a standard mortgage upon completion; “stand-alone” construction loans require a separate mortgage application (two closings, two sets of closing costs)
• Contingency: lenders typically require a 10–15% contingency reserve beyond the construction budget

Reference: typical construction loan terms (US, 2024)

• Loan-to-cost (LTC): 75–80% of total project cost
• Interest rate: Prime + 1–3% (often 7–10% in 2024)
• Term: 12–18 months construction + 30-year permanent

Worked example: Construction loan: $500,000 at 8.5% annual rate. Draw schedule over 12 months.

Month 1: Draw $75,000 (15%) → interest = $75,000 × 0.0071 = $532 Month 3: Total drawn $200,000 → interest = $200,000 × 0.0071 = $1,417/month Month 9: Total drawn $425,000 → interest = $425,000 × 0.0071 = $3,012/month Month 12: Total drawn $500,000 → interest = $3,542/month

Estimated total construction-period interest = $25,000–$30,000 over 12 months, rising each month as draws increase.