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 sample values

Take a 400,000 loan at a 7% annual rate over a 12-month build with an average draw of 50%: the build-phase interest works out to 14,000.00. The figures here are an illustration, not a recommendation.

The levers in this calculation

Every input pulls with exactly equal force: the four multiply together, so 10% more on any one of them is 10% more interest. What separates them in practice is realistic range. Rate quotes differ by fractions of a point, but the build can slip by months and the draw pattern can shift the average balance substantially. At the sample figures, one extra percentage point of rate adds 2,000, while six extra months add 7,000, and so does raising the average draw from 50% to 75%. Across realistic ranges, schedule and draw pattern move the total further than rate does.

How the math works

The calculation is one line: the average drawn balance (loan amount times the average draw percentage) carries the annual rate for the build duration, as simple interest with no compounding. The average-draw input stands in for the whole draw schedule.

What the headline rate hides

The quoted rate hides the draw schedule. Two loans at the same rate can cost very different amounts during the build, because interest accrues only on what has been drawn: a project that draws late and light carries a lower average balance than one that draws early, even if both end fully drawn. Inspection fees, arrangement charges, and the pricing of the post-build conversion also sit outside the quoted rate.

Worked example

On the sample figures (a 400,000 loan at 7% over a 12-month build with the average drawn balance at 200,000), the interest-only cost during construction calculates as follows:

• Interest per month = 200,000 × (7% ÷ 12) ≈ 1,166.67
• Total interest = 200,000 × 7% × (12 ÷ 12) = 14,000

When this calculation matters

The figure matters most when the build-phase cost is being budgeted separately from the mortgage that follows it: comparing two offers whose rates look similar but whose draw schedules do not, sizing the cash needed month by month during construction, or folding financing charges into a total project cost.

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.