About the Construction Loan Calculator
This construction loan calculator estimates what you will pay while your home is being built and after it is finished. During construction, lenders release money in stages (draws) as work is completed, and you usually pay interest only on the amount drawn so far — so payments start small and grow as the house goes up. When the build is complete, the loan converts to (or is replaced by) a permanent mortgage with regular principal-and-interest payments.
It is for people building a custom home, adding a major extension, or comparing a construction-to-permanent loan with a standalone construction loan. Enter the total project cost (land plus build), your down payment, the construction rate and build time, and the permanent rate and term. The month-by-month chart shows how interest payments climb during the build.
The calculator assumes the whole loan, including any financed land, is released in equal monthly draws at the start of each month at a fixed construction rate. That is a simplification: real draw schedules follow inspections and milestones, and a land purchase is usually paid in full at closing, so actual interest in the early months (and in total) can be noticeably higher than shown. Many projects also run late, so keep a contingency of 5%–10% of the build cost.
With the default inputs, the permanent monthly payment (p&i) is $2,334.95. Change any value above to recalculate instantly.
How to use the construction loan calculator
- 1Add up the land price and the builder’s contract to get the total project cost.
- 2Enter your down payment or land equity as a percentage (20%–25% is typical).
- 3Enter the construction rate and how many months the build will take.
- 4Enter the rate and term for the permanent mortgage after completion.
- 5Review the interest-only payments during the build and the final mortgage payment.
Formula and method
The loan amount L is the project cost minus your down payment or land equity. During construction the calculator assumes the loan (land included) is drawn in N equal monthly instalments at the start of each month, and you pay interest only on the cumulative amount drawn. Month i therefore carries interest of L × i ÷ N × r, where r is the construction rate ÷ 12. Summing over the build gives L × r × (N + 1) ÷ 2.
At completion the full loan converts to a permanent mortgage. Its monthly payment M uses the standard amortization formula with the permanent monthly rate r′ and n months. Closing costs, contingency reserves and any interest reserve built into the loan are not included.
- L
- Loan amount (project cost − down payment)
- N
- Construction period in months
- r
- Monthly construction rate
- r′
- Monthly permanent mortgage rate
- n
- Permanent loan term in months
Worked examples
$450k project, 20% down, 12-month build
The loan is $360,000. With equal draws over 12 months at 8.5%, interest-only payments climb to $2,550 in the final month and total $16,575. After completion, a 30-year mortgage at 6.75% costs $2,334.95 a month.
$600k project, 25% down, 18-month build at 9%
A $450,000 loan drawn over 18 months at 9% costs $32,062.50 in construction interest, peaking at $3,375 a month. The permanent 30-year loan at 6.5% is $2,844.31 a month.
$350k build, 10% down, 9 months, 15-year permanent loan
Borrowing $315,000, the 9-month build at 8% costs $10,500 in interest (about $1,167 a month on average). A 15-year permanent loan at 7% then costs $2,831.31 a month.
Frequently asked questions
How do construction loan payments work?+
During the build you usually make interest-only payments on the amount the lender has released so far. Payments start small and grow with each draw, then switch to regular principal-and-interest payments when the loan converts to a permanent mortgage.
What is a construction-to-permanent loan?+
It is a single loan with one closing that funds construction and then converts to a standard mortgage when the home is finished. A standalone construction loan must be paid off with a separate mortgage, meaning two closings and two sets of fees.
How much down payment do you need for a construction loan?+
Conventional construction loans commonly require 20%–25% down, though FHA, VA and USDA construction-to-permanent programs allow less. Land you already own is often counted toward the down payment.
Why are construction loan rates higher?+
The lender is financing a house that does not exist yet, so there is risk of delays, cost overruns or an unfinished project. Rates are often variable and typically above standard mortgage rates during the build phase.
What happens if construction goes over budget?+
The lender will not usually increase the loan, so you must cover overruns in cash. Most lenders require a contingency reserve of around 5%–10% of the build cost for this reason.
Results are estimates for educational purposes and are not financial advice. Rates, fees and terms vary — confirm with your lender or a licensed advisor before making decisions.