- Construction loan
- A short-term loan that funds building a home, paid out in stages as work is completed rather than as one lump sum. During the build, the borrower usually pays interest only on the amount drawn so far. This calculator estimates that build-phase interest separately from the permanent mortgage that follows.
- Construction-to-permanent loan
- A single loan that covers the build and then converts to a standard mortgage once the home is finished, often with one closing. The permanent rate and term entered here set the monthly payment after conversion. Conversion rules, rate locks and fees differ by lender, so the details are worth confirming before the build starts.
- Draw schedule
- The plan for releasing construction funds in installments, usually after inspections confirm each stage is done. Interest accrues only on money already drawn. This calculator assumes build funds are drawn evenly, so about half is outstanding on average, while any financed land is outstanding from day one. A real schedule will produce different interest.
- Interest-only payment
- A payment that covers the interest due but repays no principal, so the balance does not fall. Construction loans typically require interest-only payments during the build. The average monthly interest-only payment shown here is the estimated construction-period interest divided by the number of months in the build.
- Total project cost
- The land cost plus the construction cost. It is the figure your down payment or equity is measured against and the starting point for the loan amount. It excludes construction-period interest, closing costs, permits handled outside the builder’s contract and cost overruns, all of which can add to what the project actually requires.
- Down payment / equity
- Cash or the value of land you already own that you put toward the project. This calculator applies it to the land first and then to construction; the rest is borrowed. Lenders set minimum equity requirements for construction loans, and land already owned outright can often count toward it.
- Loan amount
- Total project cost minus your down payment or equity. It is the balance that accrues interest during construction and then becomes the permanent mortgage. Construction-period interest is shown separately and, in this calculator, is not added to the loan, so it represents cash paid during the build.
- Permanent loan rate
- The annual interest rate on the mortgage that replaces the construction loan after the home is finished. Construction rates are usually higher because the lender is financing an unfinished property. Together with the permanent term and loan amount, this rate sets the long-term monthly principal-and-interest payment and the total interest on the permanent loan.
- Amortization
- The schedule by which each permanent-loan payment is split between interest and principal until the balance reaches zero. Amortization starts only after conversion; during construction nothing is repaid. Early permanent payments are mostly interest, which is why total interest on the permanent loan can approach or exceed the amount borrowed on a long term.
