A construction loan calculator estimates the interest you pay while a house is being built and the mortgage payment once building ends. Formula: Construction interest = (loan ÷ 2) × build rate ÷ 12 × build months; permanent payment = PMT(loan, permanent rate, term). For a $350,000 loan, a 9-month build at 8% interest-only and a 30-year permanent loan at 6.5%, build interest is about $10,500 and the permanent payment is $2,212.24.
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How to use the construction loan calculator
- Enter the total construction loan amount.
- Enter the number of months you expect the build to take.
- Enter the interest-only rate during construction.
- Enter the permanent mortgage rate and term.
The construction loan calculator shows the average balance during the build, the estimated interest for that period and the monthly payment once the loan becomes a regular mortgage.
What formula does the construction loan calculator use?
Builders draw money in stages, so you do not pay interest on the full amount from day one. The tool assumes draws are spread evenly, which makes the average balance half the loan. Interest = average balance × annual rate ÷ 12 × months. The permanent payment is a standard 30- or 15-year amortizing payment on the full loan. Capitalized interest is not added to the balance in this estimate.
Construction loan calculator worked example
Results from the construction loan calculator:
| Project | Average balance | Build interest | Permanent payment |
|---|---|---|---|
| $350,000, 9 months at 8%, 30 years at 6.5% | $175,000 | $10,500.00 | $2,212.24 |
| $500,000, 12 months at 8.5%, 30 years at 6.75% | $250,000 | $21,250.00 | $3,242.99 |
| $250,000, 6 months at 7.5%, 15 years at 6.25% | $125,000 | $4,687.50 | $2,143.56 |
If your builder takes most of the money early, for example for land and foundation, the real interest will be higher than the even-draw estimate. Ask the lender for the draw schedule and test a longer build too.
How construction loans work
The CFPB describes a construction loan as usually a short-term loan to build or rehabilitate a home. Rates are generally higher than on longer-term purchase mortgages, the money is paid out in a series of advances as work progresses, and payments sometimes start six to 24 months after the loan is made. At the end you pay off the balance or convert it to a regular mortgage; if it does not convert automatically, you may have to apply again.
How the draw schedule changes interest
Lenders release money in stages tied to inspections: land and site work, foundation, framing, mechanicals, and finish work. Interest is charged only on what has been drawn. If heavy costs come early, the average balance is closer to the full loan, and interest is higher than the even-draw estimate. If most money goes out near the end, interest is lower. To bracket the risk, run the tool a second time with the full loan amount entered as if it were drawn on day one, which gives an upper bound.
Delays cost money too. Each extra month of building adds another month of interest on the drawn balance, and weather, permits and material shortages are common causes.
One-time close or two loans?
A construction-to-permanent loan converts to a mortgage once building is done, so you close once. A construction-only loan has to be paid off, usually with a new mortgage, which means a second set of closing costs and a fresh approval. Under the CFPB’s TRID rules, a lender can disclose a construction-permanent loan as one combined transaction or as separate phases, so read both the Loan Estimate and the Closing Disclosure carefully.
Budgeting for the build
- Add a contingency of your own choosing for cost overruns; the construction loan calculator does not include one.
- Remember you may still pay rent or a current mortgage during the build.
- Rate locks for the permanent phase vary by lender, so ask how a rate change would affect the second payment.
Estimates for education only, not tax, legal or financial advice. Check current rules with the tax authority or a qualified adviser.
Related converters and calculators
Related calculators:
- Mortgage calculator: permanent payment
- Home equity loan calculator: borrow against equity
- Interest rate calculator: rate check
Sources
CFPB: What is a construction loan?; CFPB: TILA-RESPA integrated disclosure FAQs (construction loans).
Questions about this calculator
How is interest charged on a construction loan?
Usually interest-only on the amount drawn so far, so the interest grows as the builder takes more money.
Why does the calculator use half the loan?
Even draws over the build average out to about half the loan outstanding.
When do construction loan payments start?
The CFPB says payments sometimes start six to 24 months after the loan is made, depending on the loan.
What is a construction-to-permanent loan?
A loan that converts to a regular mortgage after building ends, so you close only once.
Are construction loan rates higher?
Generally yes. The CFPB notes they usually carry higher rates than longer-term purchase mortgages.
Check the assumptions and units before relying on a result. Financial, tax and health estimates do not replace advice for your individual circumstances.
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