Construction Loan Calculator
A construction loan calculator is a tool that helps borrowers estimate the costs associated with financing a construction project. Construction loans are typically short-term loans used to finance the building of a new home or other structure. These loans often have unique features that distinguish them from traditional mortgages.
Construction Loan: Paying Back a Fixed Amount Periodically
Use this calculator for basic calculations of construction loans, or click the links for more detail on each.
Construction-to-Permanent Loan: Paying Back a Lump Sum Due at Loan Maturity
Construction-only Loan: Predetermined Amount Due at Loan Maturity
Use this calculator to compute the initial value of a construction-only loan based on a predetermined face value to be paid back at loan maturity.
Construction Loan: Fixed Amount Paid Periodically
Construction loans are short-term loans used to finance the building of a new home or other structure. These loans typically have a variable interest rate and are paid in draws as construction progresses. The borrower only pays interest on the amount drawn during the construction period.
Construction-to-Permanent Loan: Single Lump Sum Due at Loan Maturity
Construction-to-permanent loans combine a construction loan and a traditional mortgage into one loan. During the construction phase, the borrower pays interest only on the amount drawn. Once construction is complete, the loan converts to a traditional mortgage with principal and interest payments.
Construction-only Loan: Predetermined Lump Sum Paid at Loan Maturity
Construction-only loans are short-term loans that cover only the construction phase. At the end of the construction period, the borrower must pay off the loan in full, typically by securing permanent financing or selling the property.
Construction Loan Basics for Borrowers
Interest Rate
Construction loan interest rates are typically variable and based on the prime rate. These rates are often higher than traditional mortgage rates because construction loans are considered riskier by lenders.
Loan Term
Construction loans typically have short terms, usually 6 months to 2 years. The short term reflects the temporary nature of construction financing.
Draw Schedule
Construction loans are disbursed in draws as construction milestones are completed. The lender typically requires inspections before releasing each draw.
Advantages of Construction Loans
- Single Closing: Construction-to-permanent loans eliminate the need for two separate closings
- Interest-only Payments: During construction, borrowers typically only pay interest on the amount drawn
- Flexible Disbursement: Funds are released in draws as construction progresses
- Rate Lock: Some lenders offer rate locks to protect against rate increases during construction
- Streamlined Process: Construction-to-permanent loans simplify the financing process
Construction loans are essential for financing new building projects. These loans differ from traditional mortgages in several key ways, including their short terms, variable rates, and draw disbursement schedules.