Construction Loan Calculator

Construction loans pay interest only during the build, against the drawn balance. A 400,000 loan drawn evenly over 12 months at 7% averages about 14,000 of interest during construction — roughly half the interest on the full loan, because the average balance is only half. At project end the loan converts to a standard mortgage.

Run it with sensible defaults

Using total loan amount of 400,000, annual rate of 7%, build duration of 12, average draw of 50%, the calculation works out to 14,000.00. The defaults are meant as a starting point, not a recommendation.

The levers in this calculation

The inputs — Total Loan Amount, Annual Rate, Build Duration, and Average Draw % — do not pull with equal force. Not every input has equal weight. Adjusting one input at a time toward extreme values shows which ones move the result most.

How the math works

Interest-only on average drawn balance across build. Average draw percentage approximates gradual drawdowns.

What the headline rate hides

Lenders quote a rate; what you pay is a blend of that rate, fees, insurance, and any early-repayment penalty built into the product. The figure here isolates the core interest cost so you can compare like-for-like across deals — then add the other costs separately before signing anything.

What this doesn't capture

The figure excludes arrangement fees, valuation costs, legal fees, insurance, and any early-repayment charges — those can add several thousand to the headline cost. Rate changes at renewal for fixed-term deals will shift the picture further. Use this for the core interest/principal math and add the other costs on top.

Worked example

A builder obtains a 500,000 construction loan at 6.5% annual interest over 18 months, with funds drawn gradually. If the average drawn balance across the 18-month build is 250,000 (reflecting the gradual nature of draws), the interest-only cost during construction calculates as follows:

• Interest per month = 250,000 × (6.5% ÷ 12) = 1,354.17
• Total interest over 18 months = 1,354.17 × 18 = 24,375

Once construction finishes, the loan converts to repayment mode, and monthly payments begin to cover both principal and interest on the full loan amount.

When this calculation matters

This metric helps borrowers understand the true interim cost of construction financing before conversion to standard repayment. It becomes relevant when:

• Comparing competing construction loan offers with different rates and draw schedules
• Budgeting for build-phase cash flow, separate from post-completion mortgage payments
• Modeling total project cost, including financing charges
• Deciding whether to fix the rate during construction or accept variable pricing

What the result shows and does not show

The calculator shows estimated interest accrued during the construction phase only, based on the inputs provided. It does not predict:

• Interest cost after conversion to standard repayment
• The effect of rate changes or repricing events
• Fees, insurance, or other charges embedded in the loan product
• Penalties for early settlement or overpayment
• The impact of missed or late payments on the total cost

This calculation is educational and illustrative only. Actual interest accrued may differ based on lender terms, draw timing, rate variation, and other contractual conditions.