# What will my construction loan cost?

Computes the interest-only payments while a home is built and the loan is drawn month by month, the interest during construction, and the payment on the permanent loan afterwards.

- Page: https://www.acalculator.org/finance/construction-loan-calculator
- JSON spec: https://www.acalculator.org/finance/construction-loan-calculator.json
- Version: a3fb54db2c24

## Default answer

Example with the default inputs (Construction loan amount $400,000.00, Build time (months) 12, Drawn at closing $0.00, Construction interest rate 8.5%, Permanent loan rate 7%, Permanent loan term (years) 30, Loan start date September 30, 2026) on the example date Wednesday, September 30, 2026: A $400,000.00 construction loan drawn over 12 months at 8.5% costs $18,416.67 in interest during the build, and $2,833.33 a month once fully drawn.

## Inputs

| Key | Label | Description |
| --- | --- | --- |
| amount | Construction loan amount | The whole amount the lender will pay out over the build. |
| months | Build time (months) | How many months the build takes; the loan is paid out in equal draws, one at the start of each month. |
| initial | Drawn at closing | Money paid out when the loan closes, for example to buy the land; the rest is drawn over the build. |
| rate | Construction interest rate | The yearly rate during the build. The monthly rate is this ÷ 12. |
| permrate | Permanent loan rate | The fixed yearly rate of the loan that repays the construction loan when the build ends. |
| permyears | Permanent loan term (years) | The years of the permanent loan; 0 when the whole loan is repaid when the build ends. |
| start | Loan start date | The day the loan starts. The first payment is one month later. |

## Outputs

| Key | Label | Description |
| --- | --- | --- |
| fullPayment | Interest-only payment when fully drawn | The payment in the last build month, when the whole loan is out: the loan × the rate ÷ 12. |
| firstPayment | First interest-only payment | The payment in the first build month, on the closing draw and the first monthly draw. |
| draw | Monthly draw | The money paid out at the start of each build month. |
| buildInterest | Interest during construction | All the interest paid in the build months. |
| permPayment | Permanent loan payment | The level monthly payment that repays the whole loan over the permanent term. |
| permInterest | Permanent loan interest | All the interest on the permanent loan. |
| interest | Total interest | The interest during construction plus the interest on the permanent loan. |
| payoff | Last payment | The month of the last payment, when a start date is given. |

## Method

draw = (L − D₀) ÷ m; build interest = r × (m × D₀ + draw × m(m + 1) ÷ 2), with r = rate ÷ 1200; permanent payment = L × p ÷ (1 − (1 + p)^−N), with p = permanent rate ÷ 1200 and N its months.

## Assumptions

- The loan is paid out in equal draws at the start of each build month, after any amount drawn at closing.
- During the build you pay only the interest, at the end of each month, on everything drawn so far.
- When the build ends, a fixed-rate permanent loan repays the whole amount, or the balance is due at once.
- Fees, interest reserves, and closing costs are not included.
- Values are not rounded to the cent between months; only the display is rounded.

## Worked examples

1. amount = $400,000.00, months = 12, initial = $0.00, rate = 8.5%, permrate = 7%, permyears = 30 gives draw = $33,333.33, firstPayment = $236.11, fullPayment = $2,833.33, buildInterest = $18,416.67, permPayment = $2,661.21, interest = $576,452.26. Source: Regulation Z, 12 CFR 1026 appendix D, multiple advance construction loans (interest on the amount advanced). https://www.consumerfinance.gov/rules-policy/regulations/1026/d/.
2. amount = $300,000.00, months = 9, initial = $75,000.00, rate = 9%, permrate = 6.5%, permyears = 15 gives draw = $25,000.00, firstPayment = $750.00, fullPayment = $2,250.00, buildInterest = $13,500.00, permPayment = $2,613.32. Source: Regulation Z, 12 CFR 1026 appendix D, multiple advance construction loans (interest on the amount advanced). https://www.consumerfinance.gov/rules-policy/regulations/1026/d/.
3. amount = $250,000.00, months = 6, initial = $0.00, rate = 12%, permrate = 7%, permyears = 0, start = 2026-11-01 gives buildInterest = $8,750.00, interest = $8,750.00, payoff = 2027-05-01. Source: Regulation Z, 12 CFR 1026 appendix D, multiple advance construction loans (interest on the amount advanced). https://www.consumerfinance.gov/rules-policy/regulations/1026/d/.

## FAQ

### How do construction loan payments work?

The lender pays the builder in stages (draws) as work is done. Until the build ends you usually pay only the interest on the money drawn so far, so the payment starts small and grows with each draw. When the home is finished, the loan is repaid or turned into a regular mortgage.

### How is the interest during construction calculated?

Each month the interest is the amount drawn so far × the yearly rate ÷ 12. With equal draws at the start of each month, the total is r × draw × m(m + 1) ÷ 2, where m is the number of months. $400,000 drawn over 12 months at 8.5% costs $18,416.67 in interest during the build.

### What is a construction-to-permanent loan?

One loan that pays for the build and then becomes a fixed-rate mortgage, with one closing. This page shows it as interest-only months during the build, then a level payment over the permanent term. With a separate construction loan you pay it off at the end of the build, often with a new mortgage; enter a permanent term of 0 years to see that.

### Why is the payment highest at the end of the build?

Because by then the whole loan has been paid out, so the interest is on the full amount: the loan × the rate ÷ 12. For $400,000 at 8.5% that is $2,833.33 a month.

### What does “drawn at closing” mean?

Money the lender pays out on the first day, often to buy the land or pay off a lot loan. You pay interest on it from the first month; the rest of the loan is drawn in equal parts over the build.

### Do real draws come in equal monthly amounts?

Not usually. Draws follow the builder’s schedule and inspections, so some months draw more. Equal draws give a fair estimate of the interest; your lender’s draw schedule gives the exact figure.

## Sources

- Consumer Financial Protection Bureau, What is a construction loan? https://www.consumerfinance.gov/ask-cfpb/what-is-a-construction-loan-en-108/
- Regulation Z, 12 CFR 1026.17(c)(6)(ii) and appendix D, Multiple advance construction loans (interest on the amount advanced). https://www.consumerfinance.gov/rules-policy/regulations/1026/d/
- Amortized loan payment formula: S. A. Broverman, Mathematics of Investment and Credit, chapter 3.