Construction Loan Calculator
Enter your loan amount, rate, and build term to estimate construction-period interest.
Result
How it is calculated
The tool assumes the loan is drawn in equal steps all the way through the build, so the balance climbs in a straight line from zero to the full amount and averages half of it. average balance = loan / 2. Interest is simple, not compounded: interest = loan × (annual rate / 100) × (months / 12) × 0.5. The monthly figure is interest / months, an average, because real monthly interest rises as more is drawn. The rate is the annual percentage rate and the term is in months; the loan and the term must be above zero, and the rate can be zero or more. Fees, points, the interest reserve that lenders add, and any conversion to a permanent mortgage are not included.
Worked example
A $300,000 construction loan at 7.5% a year over a 9-month build. Average balance: 300,000 / 2 = $150,000.00. Interest: 300,000 × 0.075 × (9 / 12) × 0.5 = 300,000 × 0.075 × 0.75 × 0.5 = $8,437.50. Divided over 9 months, the average monthly interest is $937.50. The tool shows total interest of $8,437.50, an average balance of $150,000.00 and $937.50 a month on average. In practice the first months cost less and the last months more.
Common mistakes
- Entering the build term in years. The field is in months, so 1 for a one-year build is treated as one month and the interest is far too small.
- Expecting the full loan to be charged interest from day one. Here only the average drawn balance, half the loan, bears interest, which holds only if the draws are even.
- Treating the monthly average as your actual monthly payment. Early payments are lower and the last ones are much higher, and the real draw schedule changes the shape again.
- Entering the monthly rate instead of the annual rate. The field takes the yearly percentage, so 0.625 for a 7.5% annual loan makes the answer twelve times too small.
- Leaving out lender fees, inspections and the permanent-loan costs that follow. The result is interest only.
About this calculator
A construction loan doesn't disburse all its funds at once — it's drawn down gradually as building progresses, so interest only accrues on whatever portion has actually been advanced. This calculator assumes an even, linear draw schedule over the build term, meaning the outstanding balance grows roughly from $0 to the full loan amount, averaging about half the total loan — so estimated interest ≈ (Loan Amount ÷ 2) × Rate × Build Term, rather than charging interest on the full amount from day one.
Real-world draws follow an actual construction draw schedule (foundation, framing, roof, finishes, etc.) rather than a perfectly straight line, so this linear approximation is a planning estimate, not a substitute for the lender's draw-schedule amortization. Homebuilders, custom-home buyers, and construction lenders use it to budget interest reserve — the amount set aside specifically to cover interest payments during the build — before construction begins and the loan later converts to a permanent mortgage.
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