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Construction Loan Calculator
A construction loan calculator shows what building a home will cost you in two stages. During construction you usually pay interest only on the loan, month by month, while the house is being built. When the build is finished, the loan converts into a regular mortgage and you start paying principal and interest together. Enter your loan amount, rates, construction period, and mortgage term to see both payments, the total interest paid during the build, and the full cost over the life of the loan.
| Interest-only payment (monthly) | $1,750.00 |
| Total interest during construction | $15,750.00 |
| Monthly mortgage payment after conversion | $1,896.20 |
| Total mortgage payments (30 years) | $682,633.47 |
| Total cost (construction interest + mortgage) | $698,383.47 |
Payments over time
Left bars: interest-only payments during construction. Right bars: mortgage payments after conversion.
How it works
A construction loan works in two phases, and this calculator prices both. In the first phase, the build phase, the lender releases money in stages called draws as each part of the house is finished — the foundation, the framing, the roof, and so on. You pay interest only on the money that has actually been drawn, which keeps the monthly payment low while you may still be paying rent elsewhere. The calculator assumes the full loan amount is drawn for the whole period by default, which gives you the highest possible interest cost; the draw percentage lets you model a more realistic average, such as 50 percent drawn on average if the money goes out gradually over the build.
The interest-only payment is simple: loan amount times the annual construction rate, divided by 12. Multiply that by the number of construction months and you get the total interest paid during the build. That interest is a real cost — it does not reduce what you owe, so when construction ends you still owe the full loan amount.
In the second phase, the loan converts into a regular mortgage. Now each monthly payment covers interest plus a slice of the principal, so the balance falls a little every month until it reaches zero at the end of the term. The payment comes from the standard mortgage formula, using the converted rate and the term you choose: 15, 20, or 30 years. A longer term gives a smaller monthly payment but much more total interest over the life of the loan, which is why the calculator also shows the total of all mortgage payments and the combined total cost.
Try changing the construction period from 9 months to 12 and watch the total construction interest climb. Or compare a 15-year term with a 30-year term: the monthly payment jumps, but the total cost falls sharply. That comparison is the heart of planning a construction loan — a cheap monthly payment during the build is only half the story.
Worked example
Say you borrow $300,000 to build a house. The construction rate is 7 percent, the build takes 9 months, and when it converts the mortgage rate is 6.5 percent on a 30-year term. The full loan is drawn, so the draw percentage is 100 percent. Here is the calculation, step by step.
Step 1: Interest-only payment = $300,000 × 7% ÷ 12 = $300,000 × 0.07 ÷ 12 = $1,750.00 per month.
Step 2: Total interest during construction = $1,750.00 × 9 months = $15,750.00.
Step 3: Monthly mortgage rate = 6.5% ÷ 12 = 0.5417%. Number of payments = 30 × 12 = 360.
Step 4: Mortgage payment = $300,000 × 0.0054167 ÷ (1 − (1.0054167)−360) = $1,896.20 per month.
Step 5: Total mortgage payments = $1,896.20 × 360 = $682,633.47. Combined total cost = $15,750.00 + $682,633.47 = $698,383.47.
Enter those same numbers — $300,000 loan, 7 percent construction rate, 9 months, 6.5 percent mortgage rate, 30-year term, 100 percent drawn — and the tool shows exactly this result: $1,896.20 / month after conversion, with $1,750.00 per month of interest-only payments and $15,750.00 of total interest during construction.
FAQ
What is a construction loan?
A construction loan is short-term financing used to pay for building a home. The lender releases the money in stages as the work progresses, and during the build you usually pay interest only on the amount drawn so far. When construction finishes, the loan converts into a regular mortgage that you repay over many years.
Why are construction loan payments interest-only?
Because you are paying for a home you cannot live in yet, and often still paying rent or another mortgage at the same time. Interest-only payments keep the monthly cost low during the build. The trade-off is that the loan balance does not shrink during construction — you start repaying the principal only after the loan converts to a mortgage.
How is the monthly payment calculated after conversion?
After conversion it is a standard mortgage payment: the loan amount, the new interest rate, and the term in years decide it. The formula is the loan amount times the monthly rate, divided by one minus one over one plus the monthly rate raised to the number of monthly payments. A lower rate or a longer term lowers the monthly payment but raises total interest.
What happens if construction takes longer than planned?
Every extra month of construction adds another interest-only payment, and the loan may need an extension that costs extra fees. Delays also push back the date your mortgage payments start. It is wise to budget for at least a month or two of overrun when you plan the build and the loan.
Do I need a down payment for a construction loan?
Usually yes. Lenders often ask for a down payment of around 20 percent of the project cost, and some ask for less if you already own the land, since the land can count toward your equity. The exact requirement depends on the lender, your credit, and the project.