Home Construction Loan Calculator 2021

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Our construction loan calculator determines your monthly payments during construction and the monthly mortgage payment during the term of the loan. Our calculator requires basic inputs such as the cost of the land & construction, the estimated value of the completed home, length of the project, and basic loan information.

Estimated Monthly Mortgage Payment: $404.29
First Interest Only Payment
Last Interest Only Payment

What is a construction loan?

A construction loan involves borrowing funds to finance your home construction project. It is a short-term loan that is eventually either paid back in full or refinanced into a conventional mortgage.

Construction Loans Process

More information regarding this loan can be found on our construction loans page.

How do construction loans work?

Construction loans are structured differently than normal loans. In traditional mortgages, the borrower receives the funds and pays back the interest and principal in installments. Whereas in construction loans there is no collateral backing the loan, the lender only provides portions of the loan to the contractor directly.

At each stage of the home building process, an inspection agent from the lender will analyze the progress and will release funds for the next step of the process. Major inspections will include building the foundation, home framework, roofing, and lastly, finishing. Each stage will have a different amount of funds disbursed to the contractor directly and not to the borrower. By the end of the construction, all funds required will be disbursed, following which the borrower must determine whether to pay back the amount or refinance into a mortgage.

How are construction loan payments calculated?

Construction loans require interest-only payments during the life of the construction project. At each stage when more funds are disbursed the interest-only payment will increase.

For example:

  • Property Status = Purchase
  • Cost of Purchasing Land = $100,000
  • Estimated Cost of Construction = $400,000
  • Estimated Value of Completed Home = $500,000
  • Length of Project = 12 Months
  • Interest Rate = 3%

First Interest Only Payment = $250 ($100,000 x 3% / 12months)

Final Interest Only Payment = $1,250 ($500,000 x 3% / 12 months)

As the above example demonstrates, initially, the only funds that are borrowed are the $100,000 for the purchase of the land. Hence, the first interest payment is only $250, because it is based on the $100,000 and not the full loan amount of $500,000.

Once the construction project is completed and all the funds have been used, the last interest payment is on the entire loan amount of $500,000 resulting in $1,250.

Once the construction project is over the borrower can repay the entire loan or refinance it into a mortgage. In the above example, if the borrower refinances the amount into a mortgage, the entire $500,000 deducting any down payment will be amortized into a 29-year mortgage. It is 29 years because the first year was spent in construction. Using our amortization calculator, we can calculate the monthly mortgage payment which will be $2,150.

Any calculators or content on this page is provided for general information purposes only. Casaplorer does not guarantee the accuracy of information shown and is not responsible for any consequences of its use.