Construction Loan Calculator: Draws and Interest

Construction Loan Calculator

Estimate progressive construction draws, interest during the build, peak loan balance, cash contribution and the optional permanent-loan payment.

Hard and soft costs expected to be funded during construction.
Enter zero when the land is already owned free and clear and no land debt is paid from this loan.
Applied before loan proceeds in this model.
A planning pattern, not a contractor schedule.
Fees, interest treatment and permanent loan

How the construction loan calculator works

The calculator first combines the construction budget, the land amount funded at closing and other financed costs, then subtracts the borrower’s cash or equity contribution. When the origination fee is financed, it solves for the loan amount that also covers that percentage-based fee.

Monthly construction interest: estimated balance used for interest × annual construction rate ÷ 12. Under the average-balance assumption, the month’s new loan draw is treated as arriving evenly, so the interest base is opening balance + half of the new draw.

Borrower equity is applied before loan proceeds. The selected pattern distributes the construction budget across the term: equal amounts, larger early draws or larger later draws. If interest is capitalized, each month’s interest increases the next opening balance. If it is paid monthly, it appears in cash used instead.

Worked example

The example models a US$350,000 construction budget, US$75,000 of land purchase or payoff, US$90,000 of borrower equity, US$2,500 of financed costs and a 1% financed fee. Construction lasts 12 months at 8.5% with even draws. The optional permanent phase uses 6.75% for 30 years. Replace every value with the lender’s budget, draw rules and term sheet.

Do not treat the draw pattern as a forecast. Contractor invoices, inspections, retainage, contingency use and lender approval timing determine actual balances. A monthly model is useful for comparison but cannot reproduce a lender’s daily-interest ledger.

Why construction-loan interest differs from a mortgage payment

A conventional mortgage generally funds the entire principal at closing. A construction loan usually advances funds over time. Interest is therefore charged on the amount already drawn, not automatically on the full approved commitment. During construction, payments may be interest-only or interest may come from a financed reserve. After completion, the outstanding balance may convert to or be refinanced by a permanent amortizing loan.

Important limits

This is an educational planning estimate, not an approval, commitment, appraisal, draw authorization, lender disclosure or financial advice. It assumes monthly periods and a fixed rate within each modeled phase. It does not model daily interest, variable rates, inspection delays, retainage, contingency categories, change orders, lien releases, interest-reserve limits, unused-line fees, minimum payments, extension charges, taxes, insurance, escrow, permits, builder risk, cost overruns, loan caps or qualification rules. Confirm the complete draw schedule and all cash requirements with the lender and builder.

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Frequently asked questions

Is interest charged on the entire construction-loan commitment?

Not normally when funds are advanced through draws. This model charges interest on the estimated outstanding balance. The note and lender ledger control the actual calculation.

What does capitalized construction interest mean here?

It means the modeled interest is added to the balance instead of treated as a monthly cash payment. A real lender may establish a limited interest reserve rather than finance an unlimited amount.

Does the permanent payment include taxes and insurance?

No. It is principal and interest only, based on the estimated ending construction balance, permanent rate and term. Add taxes, insurance, mortgage insurance, association charges and escrow separately.