Calculate construction loan interest costs during the build phase with multiple draws. See interest-only payments, total construction cost, and permanent loan transition.
Construction loans work differently from standard mortgages. Instead of receiving the full loan at closing, funds are disbursed in stages (draws) as the builder completes each phase. You pay interest only on the amount drawn, and the interest cost increases with each draw until the project is complete. Because interest accrues on an ever-growing balance, the total cost during construction can be surprisingly high — often $15,000–$25,000 or more on a typical residential build.
Once construction finishes, a construction-to-permanent (C2P) loan converts automatically into a standard mortgage. A standalone construction loan requires separate permanent financing, adding another set of closing costs. Understanding the total interest during the build phase is critical for budgeting, especially since construction timelines frequently run longer than planned due to weather, permitting delays, or supply-chain issues.
This Construction Loan Calculator models a multi-draw schedule, showing interest-only payments at each stage and the total financing cost through construction and into permanent financing. Enter your project details to see exactly what each draw phase will cost and how your payments transition into a permanent mortgage.
Construction interest adds up quickly. On a $400,000 project at 8 % with a 12-month build, you could pay $16,000+ in interest before the first permanent mortgage payment is due. This calculator breaks down costs by draw phase so you can budget accurately and compare construction-to-permanent vs standalone construction loan options.
At each draw stage, average outstanding balance = cumulative draws. Monthly Interest = Balance × (Annual Rate ÷ 12). Total Construction Interest = sum of monthly interest across all draw stages. Permanent Payment = standard amortization on full loan amount at permanent rate.
Result: Construction interest: $16,667 — Permanent payment: $2,594/mo
With 4 equal draws of $100,000 each, draw 1 balance is $100K, draw 2 is $200K, draw 3 is $300K, draw 4 is $400K. Each draw phase lasts 3 months. Total construction interest is approximately $16,667. After conversion, the $400,000 permanent mortgage at 6.75% for 30 years costs $2,594/month.
A typical residential construction loan has 4–6 draws. The lender sends an inspector to verify that the milestone is complete before releasing funds. For example: Draw 1 at foundation completion (20 %), Draw 2 at framing (25 %), Draw 3 at roofing and rough-ins (25 %), and Draw 4 at completion (30 %).
Because you're paying interest on an increasing balance, the total construction interest is roughly equal to the average outstanding balance times the rate times the build period. On a $400,000 project, the average balance across 4 equal draws is about $250,000 — so 12 months of interest at 8 % is roughly $20,000.
A single-close C2P loan saves $3,000–$6,000 in duplicate closing costs and removes the risk of not qualifying for permanent financing after the build. However, two-close structures may offer more flexibility, such as choosing a different permanent lender with better rates. Weigh the savings against the risk and flexibility trade-offs.
A draw is a disbursement of funds from the construction loan. Lenders release money in stages as the builder completes specific milestones (foundation, framing, roofing, etc.). Each draw increases the outstanding balance and therefore the interest-only payment.
Yes, you make interest-only payments on the amount disbursed so far. In the early stages, when only a small portion has been drawn, payments are relatively small. They increase with each draw as more of the loan is outstanding.
A C2P loan is a single-close product that starts as a construction loan and automatically converts to a permanent mortgage when construction is complete. This saves the cost and hassle of two separate closings and potentially two sets of closing costs.
Residential construction typically takes 6–12 months for a standard home and 12–18 months for a custom build. Delays due to weather, permitting, or supply chain issues are common — budget extra time and interest.
Some lenders offer owner-builder construction loans, but requirements are stricter. You typically need construction experience, detailed plans, and a licensed contractor for major trades. Most residential construction loans require a licensed general contractor.
Construction loans typically require 20–25 % down, higher than conventional mortgages. If you already own the land, its value may count toward the down payment. Some C2P programs accept 10 % down with PMI.