Construction Loan Calculator
Model draws, interest, and permanent financing.
What this calculator helps you estimate
This calculator estimates total project cost, construction-period interest, and the resulting permanent mortgage payment for a new-construction or major renovation project.
Construction loans typically fund in draws during the build, then convert to a permanent mortgage. Interest during construction accrues on the outstanding balance, not the full loan.
Inputs
Project details
Rough proxy for draw schedule.
Results
Project summary
Interpretation
Construction interest is estimated using an average outstanding balance assumption. Actual interest depends on the draw schedule and timing.
Understand the math
How this calculator works
Construction financing works differently than a standard mortgage: funds release in draws as work is completed, and interest accrues only on what's actually been disbursed. This calculator estimates total project cost, construction-period interest, and the resulting permanent monthly payment once the loan converts.
Worked example
$600,000 total project cost financed at 80% loan-to-cost; 9-month build at a 7.5% construction rate; converts to a 30-year permanent loan at 6.75%.
- Loan amount = $600,000 × 80% = $480,000
- Average outstanding balance during the build ≈ 50% of $480,000 = $240,000
- Construction interest ≈ $240,000 × (7.5% ÷ 12) × 9 months = $13,500
- Permanent payment on $480,000 at 6.75%, 30 years ≈ $3,113.27/month
Estimated construction-period interest ≈ $13,500; permanent monthly payment ≈ $3,113.27.
How to read your results
Interpretation guidance
- Interest during the build is charged only on funds drawn, so the average-balance assumption drives this estimate more than the full committed amount.
- Loan-to-cost (LTC) measures the loan against total project cost, while loan-to-value (LTV) uses the estimated completed value — lenders often cap both.
- A one-time-close structure avoids a second set of closing costs when the loan converts to permanent financing.
- Delays in the build schedule can extend the interest-only period and change the total interest paid before conversion.
Deeper answers
More questions about this calculator
How does construction loan interest work?
Interest is generally charged only on funds that have been drawn, not the full committed loan amount. This calculator uses an average outstanding balance assumption to estimate construction-period interest.
What is loan-to-cost?
Loan-to-cost (LTC) is the loan amount divided by the total project cost. Loan-to-value (LTV) uses the estimated completed value instead. Lenders often set limits on both.
What happens when construction finishes?
In a one-time-close structure, the loan automatically converts to a permanent mortgage without a second closing, using the terms locked at the start.
Do I make full payments during construction?
Most construction loans require interest-only payments on the drawn balance during the build, with full principal-and-interest payments beginning after conversion.
Results are estimates for educational purposes only and are not a commitment to lend, loan approval, or official Loan Estimate. Actual rates, payments, costs, taxes, insurance, mortgage insurance, eligibility, and loan terms may vary.
Related calculators
Related loan programs
Answers
Frequently asked questions
How does construction loan interest work?
Interest is generally charged only on funds that have been drawn, not the full committed loan amount. This calculator uses an average outstanding balance assumption to estimate construction-period interest.
What is loan-to-cost?
Loan-to-cost (LTC) is the loan amount divided by the total project cost. Loan-to-value (LTV) uses the estimated completed value instead. Lenders often set limits on both.
Next step
Numbers are helpful. A personalized strategy is better.
Review your scenario with a Vabasso mortgage expert. No pressure, no obligation — just clear guidance for your next move.