Case 1
- How much are you borrowing to build?
- 300000
- Interest rate (APR)
- 7.5%
- How long will the build take?
- 12
11,250.00
Open with these valuesConstruction Loan Interest Calculator
11,250.00
Result: 11,250.00During the build you pay interest only, and only on the money drawn so far. With funds released steadily, the average balance over the build is about half the loan, so the interest is roughly half of what a fully drawn loan would cost. A 300000 build at 7.5 % over twelve months costs about 11250.
The numbers at a glance
Held fixed: How much are you borrowing to build? 300,000.00, Interest rate (APR) 7.500 %.
| How long will the build take? | Result |
|---|---|
| 0 | 0.00 |
| 5 | 4,687.50 |
| 10 | 9,375.00 |
| 12Your value | 11,250.00 |
| 15 | 14,062.50 |
| 20 | 18,750.00 |
Worked examples
Case 2
- How much are you borrowing to build?
- 200000
- Interest rate (APR)
- 6%
- How long will the build take?
- 9
4,500.00
Open with these valuesCase 3
- How much are you borrowing to build?
- 100000
- Interest rate (APR)
- 6%
- How long will the build take?
- 8
2,000.00
Open with these valuesHow it's calculated
Interest = loan × (rate ÷ 12) × months × 0.5
- StepEnter what you actually need to borrow, after your deposit or land equity.
- StepAdd the annual rate; construction rates usually sit above purchase rates.
- StepEnter the length of the build in months.
- ResultRead the interest that falls due before the first repayment.
What this number means
The 0.5 is an assumption about the draws
Money is released against milestones, so the balance climbs from nothing to the full amount, and a straight-line draw puts the average at half the loan. A front-loaded draw schedule costs more than this estimate, a back-loaded one less.
Interest only, and only on what is drawn
During the build there is no principal in the payment, and interest accrues on the funds released so far rather than on the full loan. The interest-only payment shown at full draw, 1875 a month on 300000 at 7.5 %, is the peak and not the start.
The figure stops at the first repayment
What the page reports is the interest that falls due before principal-and-interest payments begin. The permanent mortgage that follows, and the draw schedule, fees, points and interest reserve of a real loan, are not modelled here.
Commonly misread
300000 at 7.5 % for twelve months costs 22500 in interest.
That is the fully drawn figure, 1875 a month times twelve. With steady draws the average balance is half the loan, so the estimate is 11250.
My payment is 1875 from the first month.
It starts lower and climbs toward that peak as more of the loan is drawn. 1875 is what a fully drawn 300000 at 7.5 % costs per month.
Fees and points are somewhere in this number.
They are not. The page computes loan × monthly rate × months × 0.5 and nothing else, so budget the rest separately.
Reference table
| Loan, rate, months | Interest-only payment when fully drawn | Construction interest |
|---|---|---|
| 300000, 7.5, 12 | 1875.00 | 11250.00 |
| 300000, 7.5, 18 | 1875.00 | 16875.00 |
| 300000, 7.5, 0 | 1875.00 | 0.00 |
| 200000, 6, 9 | 1000.00 | 4500.00 |
| 100000, 6, 8 | 500.00 | 2000.00 |
| 120000, 0, 6 | 0.00 | 0.00 |
Questions
What is a construction loan?
A construction loan is short-term financing that pays for building a home, released in stages called draws as the work is completed. You pay interest only on the funds drawn so far during the build. A construction-to-permanent loan then converts into a regular mortgage once the home is finished, and principal-and-interest payments begin.
How much interest will I pay during construction?
It depends on how quickly the funds are drawn. If they are released steadily, the average balance over the build is about half the loan, so the total is roughly the fully drawn interest-only payment times the construction months times 0.5. For a 300000 loan at 7.5 % over twelve months, that is about 11250.
Why is the answer multiplied by 0.5?
Because the loan is not fully drawn on day one — money is released against milestones, so the balance climbs from nothing to the full amount. A straight-line draw makes the average balance half the loan, and the interest follows the average balance rather than the peak. A front-loaded draw schedule costs more than this estimate, a back-loaded one less.
How is the interest-only payment calculated?
It is the outstanding balance multiplied by the monthly rate, which is the annual rate divided by twelve. On a fully drawn 300000 loan at 7.5 %, that is 1875 a month. Your real payment starts lower and climbs toward this peak as more of the loan is drawn.
What happens to the loan after the build?
With a construction-to-permanent loan the balance converts into a standard mortgage and regular principal-and-interest payments begin. With a stand-alone construction loan you normally repay it by refinancing into a separate mortgage when the home is done. Either way, the interest on this page is what you pay before that first repayment.
Is this estimate accurate for my loan?
It is a planning estimate. Real loans have a specific draw schedule, fees, points, an interest reserve and sometimes separate construction and permanent rates, none of which are modelled here. Use it to compare scenarios, then confirm the exact terms with your lender.
Sources and last check
Information, not financial advice.