Construction Loan Calculator

Construction loans work differently: you draw money in stages as the build progresses and pay interest only on what has been drawn. Assuming even monthly draws, this calculator estimates your average balance, the average monthly interest and the total interest over the construction period.

Results

Assumptions: Interest-only during construction with equal monthly draws. The permanent mortgage after construction is not modeled.

Formula

With equal monthly draws, the balance climbs in a straight line from zero to the full amount, so the average balance is:
Average balance ≈ Loan × (months + 1) ÷ (2 × months)
Interest during construction is charged on that average balance.

How to use this calculator

  1. Enter the total approved loan amount.
  2. Enter the interest rate and the expected build length in months.
  3. Press Calculate for the draw-period interest picture.
Construction Loan Calculator — how the calculation works, illustrated$
Construction Loan Calculator — how the calculation works, illustrated

Worked example

A $200,000 loan at 6% over a 12-month build.

  1. Average balance: 200,000 × 13 ÷ 24 ≈ $108,333.
  2. Total interest: 108,333 × 6% × 1 year = $6,500.
  3. Fully drawn, the monthly interest is $1,000.

Result: Expect roughly $6,500 of interest during the build, averaging about $542 a month.

Frequently asked questions

Why is the average balance about half the loan?

Because draws build up gradually: almost nothing is owed in month one and the full amount only near the end. The average of a straight-line climb is half the peak.

What happens when construction ends?

Most construction loans convert to a regular mortgage (or are refinanced into one), at which point normal principal-and-interest payments begin on the full balance.

How accurate is the even-draw assumption?

It is a planning estimate. Real draws follow the builder’s schedule — foundation, framing, finishes — which is lumpier. Front-loaded draws raise the interest; back-loaded draws lower it.

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