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 across every month of the build

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 US construction loan terms

• Loan-to-cost (LTC): 75–80% of total project cost
• Interest rate: Prime + 1 to 3%. Quote it off today’s prime rather than a figure from a web page, because that spread is the durable part and prime is not
• Term: 12–18 months construction, then a 30-year permanent loan

What this calculator assumes, and where your lender will differ. It splits the loan into equal draws spread evenly across the build. Real draw schedules are neither: the framing draw is usually the largest, the final draw is the smallest, and the timing follows inspections rather than the calendar. Equal draws are a reasonable middle estimate and they get the total close, but match the figures against your lender’s actual schedule before you budget from them.

Worked example: Construction loan: $500,000 at 8.5% annual rate, 12-month build, monthly rate 0.7083%.

With 4 draws of $125,000, each outstanding for 3 months:

Total construction-period interest = $26,563. Note that the same loan with 6 smaller draws costs $24,792, about $1,800 less, because the money sits in your balance for less time. Anything that pulls a draw later, or splits it in two, saves interest. That is worth raising when the schedule is being written.

Interest rises every month here for one reason only: the balance grows and never amortizes. A construction loan is interest-only by design, so nothing you pay during the build reduces the principal.