Construction Loan Calculator
Work out interest-only draws during a build and the payment it converts to.
Details
The builder's quote
Interest-only on what's drawn
Lenders usually go 75–85%
Interest during the build
$23,427
Loan amount
$456,000
Cash required
$118,560
Payment after conversion
$3,033.78
All-in cost
$597,987
This estimates what a construction loan costs during the build, where interest accrues only on the money released so far.
It shows the payment rising with each draw and the total interest across the build period.
How construction loans work
A construction loan pays for a house to be built, and it works nothing like a mortgage. The money is released in stages called draws, as each phase of work is finished and inspected.
The consequence that matters is this: you pay interest only on what has been drawn, not on the full approved amount. Payments start small and rise as the build progresses, so a standard mortgage calculator overstates the cost substantially.
Payments during the build are usually interest only. Nothing reduces the balance until the loan converts to a permanent mortgage or is refinanced at completion.
Total interest across the year is $21,250. Charging the full $400,000 from day one would have cost $34,000, so the draw schedule saves about 37%.
What to enter
- Total loan amount
- The full approved budget. You will not pay interest on all of it until the final draw.
- Construction period
- How many months the build takes. Overruns cost interest, so this is worth being realistic about.
- Draw schedule
- When money is released, usually tied to completed phases such as foundation, framing, mechanicals and finishing.
- Interest rate
- Usually higher than a mortgage and often variable, since the lender is carrying build risk rather than property risk.
Two ways to finance a build
- Construction-to-permanent
- One loan and one closing. It converts to a mortgage automatically at completion. Fewer fees and no requalifying.
- Standalone construction loan
- A short-term loan you must refinance into a mortgage when the build finishes. Two closings, and you requalify at the end.
- Owner-builder loan
- For acting as your own general contractor. Much harder to obtain and usually requires proven construction experience.
- Renovation loan
- For work on an existing home rather than a new build. Different product, different rules.
What this assumes
Draws are assumed to arrive on schedule. Delays extend the build and add interest.
The rate is treated as fixed. Many construction loans are variable and tied to prime.
How to calculate interest on a construction loan
Work out interest month by month on the balance drawn so far, then add the months together.
- balance drawn so far
- Cumulative draws, not the full approved amount
- monthly interest
- The whole payment during the build, since nothing repays principal
Map the draw schedule. List when each release happens and how much it is. Your builder's payment schedule usually sets this.
Track the running balance. Each draw adds to it. That cumulative figure is what interest is charged on.
Calculate interest each month. Balance times the annual rate divided by 12. The payment grows every time a draw lands.
Add a contingency for overruns. Builds run late. Every extra month is another interest payment on the full drawn balance, which is the most expensive month there is.
See a worked example: why the mortgage figure is far too high
- Loan
- $400,000 at 8.5%
- Build
- 12 months, four quarterly draws of $100,000
Months 1-3: interest on $100,000, about $708 a month.
Months 4-6 on $200,000, months 7-9 on $300,000, months 10-12 on the full $400,000 at $2,833 a month.
Total interest over the year: $21,250.
Charging the full $400,000 from day one would have been $34,000, so the draw structure saves about $12,750. A mortgage calculator cannot show this.
$21,250 of interest, not $34,000
Frequently asked questions
Money is released in stages as work is completed, commonly at foundation, framing, mechanicals and finishing. An inspector usually verifies each phase before the money moves.
You pay interest only on the cumulative amount released. That is why early payments are small and the final months are the expensive ones.
A single loan that funds the build and then converts to a normal mortgage at completion, with one closing rather than two.
It saves a second set of closing costs and, importantly, means you do not have to requalify at the end. If your income or credit changes during the build, that protection is worth a great deal.
Yes, but interest only. Nothing reduces the balance until the loan converts or you refinance.
Remember you may also be paying rent or an existing mortgage at the same time. Budget for both running together for the whole build, plus a margin for delays.
Commonly 20% to 25% of the total project cost, and lenders are stricter here than on a purchase mortgage.
Land you already own can often count towards it. If you bought the lot with a land loan and have equity in it, that equity may cover part or all of the requirement.
You cover the difference in cash. Lenders approve a fixed amount against a specific plan, and increasing it mid-build is difficult and slow.
Build a contingency of 10-20% into your own budget from the start. Cost overruns and delays are the normal case on construction projects, not the exception.
Problems people actually run into
Using a mortgage calculator to budget the build
A mortgage calculator charges interest on the full amount from day one, which gives $34,000 instead of $21,250 on the example loan.
That overstates the cost by more than a third, and it also hides the pattern that matters: payments are low at first and highest at the end, exactly when other build costs peak.
Not budgeting for delays
Weather, permits, inspections and contractor availability all slip, and a twelve-month build becoming eighteen is common.
Those extra months carry interest on the full drawn balance, $2,833 a month on the example, on top of continuing rent or an existing mortgage. Plan for it before it happens.
Results are estimates for general information only and are not professional financial, medical, or legal advice. Read our full disclaimer.
Last updated: September 4, 2026