How to Use This Calculator
- 1
Enter Loan Details
Input the Loan Amount (total construction financing), the Annual Interest Rate, the Construction Period in months (interest-only phase), and the Repayment Period in months (e.g., 240 for 20 years).
- 2
Review Results and Insights
Click Calculate to see your Monthly Post-Construction payment, Monthly During Construction payment, Total Interest Paid, Total Cost of Loan, and Effective Blended Rate. The Construction Loan Insights panel below the results shows how interest splits between the build and repayment phases, your cost per dollar borrowed, and the all-in project cost.
Example Calculation
A prospective homeowner needs a $300,000 construction loan at 7.5% annual interest. The construction phase is estimated to last 12 months, followed by a 240-month (20-year) repayment period.
Loan Amount
$300,000
Annual Interest Rate
7.5%
Construction Period
12 months
Repayment Period
240 months
Results
Monthly Post-Construction
$2,416.78
Monthly During Construction
$1,875.00
Total Interest Paid
$302,527
Total Cost of Loan
$602,527
Effective Blended Rate
4.80%
Insights card shows build-phase vs.
Tips
Budget for the Payment Jump
When construction ends, your payment increases significantly — in this example, from $1,875 to $2,417 per month, a $542 jump. Build this transition into your cash flow plan before the first draw.
Understand Draw Schedules
Construction loans are disbursed in 'draws' as milestones are met. Early in construction you pay interest on only the drawn portion, so actual payments start lower than the full interest-only amount shown here. Familiarize yourself with your lender's draw schedule to forecast cash flow accurately.
Compare Construction-to-Permanent Options
A construction-to-permanent loan converts directly into a long-term mortgage upon completion, saving a second set of closing costs. Compare rates for both phases — even 0.25% lower on the permanent rate saves thousands over 20 years.
Use the Amortization Table to Plan Ahead
Scroll down to the Post-Construction Amortization Schedule to see how each payment splits between principal and interest. In the early years, most of your payment goes to interest — making extra principal payments early can cut your total cost substantially.
Navigating Home Financing with the Construction Loan Calculator
The Construction Loan Calculator helps prospective homeowners and builders understand the two-phase cost structure of construction financing.
By entering loan amount, interest rate, construction period, and repayment term, you get monthly payments for both phases, total interest, total cost, and an effective blended rate.
For a $300,000 loan at 7.5% with 12 months of construction and a 20-year repayment, the post-construction monthly payment is $2,416.78 and total interest over the life of the loan is $302,527.
Use these figures to plan your building budget in 2026.
How Construction Loan Payments Are Calculated
A construction loan has two distinct payment phases:
During Construction (Interest-Only):
Monthly Interest Rate = Annual Interest Rate / 12 / 100Monthly Interest Payment = Loan Amount Drawn x Monthly Interest Rate(Payments increase as more funds are drawn, up to the full loan amount.)
Post-Construction (Fully Amortized):
Monthly Payment (M) = P [ i(1 + i)^n ] / [ (1 + i)^n - 1]Where:P= Loan Amount (full amount after construction)i= Monthly Interest Raten= Total Number of Repayment Months
Estimating Payments for a New Home Build
Consider a borrower securing a $300,000 construction loan at 7.5% annual interest, with a 12-month construction period and 240-month (20-year) repayment.
- Monthly Interest Rate:
Monthly Rate = 7.5% / 12 / 100 = 0.00625 - Monthly Payment During Construction (at full draw):
Interest-Only Payment = $300,000 x 0.00625 = $1,875.00 - Monthly Payment Post-Construction (Amortized):
M = $300,000 [ 0.00625(1 + 0.00625)^240 ] / [ (1 + 0.00625)^240 - 1]M = $2,416.78 - Total Construction Interest:
$1,875.00 x 12 = $22,500 - Total Repayment Interest:
($2,416.78 x 240) - $300,000 = $280,027 - Total Interest:
$22,500 + $280,027 = $302,527 - Total Cost of Loan:
$300,000 + $302,527 = $602,527
The borrower pays up to $1,875 per month during construction, then $2,416.78 per month for 20 years.
The payment jump at conversion is $542 per month.
Types of Construction Loans
- Construction-to-Permanent: The most common option. The construction loan converts into a permanent mortgage upon completion, saving a second set of closing costs.
- Construction-Only: Covers only the build phase. Upon completion, the borrower secures a separate mortgage — two sets of closing costs but flexibility to shop for the best permanent rate.
- Owner-Builder: For borrowers acting as their own general contractor. Lenders require proven construction experience and more rigorous inspections.
- Renovation Loans (FHA 203k, HomeStyle): Combine purchase or refinance with renovation costs. Funds are released in draws as renovation milestones are met.
Structuring Your Construction Budget in 2026
Construction costs and financing rates fluctuate with the economy.
In 2026, with construction loan rates in the 7.0-8.0% range, careful budgeting is essential:
- Reserve a 10-15% contingency beyond your construction estimate for cost overruns, material price changes, and weather delays.
- Lock your permanent rate early if your lender offers a rate lock during construction — this protects against rate increases before conversion.
- Track draws carefully — each draw increases your interest-only payment. Align your draw schedule with your monthly budget to avoid cash flow surprises.
- Consider a shorter repayment term — switching from 20 to 15 years increases monthly payments but significantly reduces total interest paid.
Formula Variants for Different Loan Structures
The standard Fixed-Rate Amortizing Loan uses:
Monthly Payment = P [ i(1 + i)^n ] / [ (1 + i)^n - 1]
where P is principal, i is the monthly interest rate, and n is the total number of payments.
A Construction Loan modifies this with two phases:
- Interest-Only on Drawn Funds:
Interest Payment = (Drawn Amount) x (Annual Rate / 12)— payments start low and increase with each draw. - Conversion to Amortized Loan: Once construction is complete, the full principal enters the standard amortization formula above.
Variable-Rate (ARM) Construction Loans use the same formulas but adjust the interest rate periodically based on a market index, causing monthly payments to fluctuate after conversion.
Frequently Asked Questions
How does a construction loan differ from a regular mortgage?
Construction loans typically have two phases: an interest-only phase during construction where you pay only interest on drawn funds, and a repayment phase after construction is complete where you make full principal-and-interest payments. Regular mortgages begin full repayment immediately.
Why are construction loan rates higher than mortgage rates?
Construction loans carry more risk for lenders because the collateral (the building) does not yet exist or is incomplete. There is also the risk of construction delays, cost overruns, and project abandonment. These additional risks are reflected in higher interest rates, typically 1-2% above standard mortgage rates.
What is the interest-only payment during construction?
During the construction phase, you only pay the interest accruing on the loan balance each month. This is calculated as (Loan Amount x Annual Rate) / 12. For a $300,000 loan at 5%, this would be $1,250 per month.
Can I convert my construction loan to a permanent mortgage?
Yes, many lenders offer construction-to-permanent loans (also called one-time-close loans) that automatically convert to a standard mortgage once construction is complete. This saves on closing costs and simplifies the process compared to obtaining two separate loans.