What does building cost you in financing?

Construction-phase interest cost

$15,583

That’s the interest accrued during the 10-month build. It’s capitalized into the loan via an interest reserve, so your only out-of-pocket during the build is the $110,000 down payment. Once construction completes, the loan converts to a regular 6.5% mortgage at $2,880/month (on the $455,583 balance, including capitalized interest).

How construction loans work

Construction-to-permanent (one-close) is the most common structure: one closing covers both the construction loan and the permanent mortgage. Saves a second round of closing costs ($5-10k) vs two-time-close.

Draw schedule: the lender disburses funds in stages as the build progresses (foundation, framing, roof, etc.). You only pay interest on the disbursed balance, not the full loan, so interest costs build up over the construction period.

Interest reserve vs. pay-monthly: most lenders fund a reserve at closing that covers projected construction interest, capitalizing it into the loan balance. Your only out-of-pocket during the build is the down payment. Some lenders still require monthly interest payments. Toggle above if that’s your case.

Average balance: the calc assumes land is funded fully at closing and build cost is drawn linearly over the construction period, so the average interest-bearing balance is land + (build / 2). This approximates a typical builder draw schedule more honestly than a flat “loan/2” assumption.

Conversion to permanent: when construction completes and the home is inspected, the loan automatically converts to your permanent mortgage with regular P&I payments at the locked permanent rate.

Things this calc doesn’t model: draw fees ($150-300 each, can add up), construction loan closing costs (typically 1-2% of loan), inspection fees during draws, contingency reserves (5-10% of build cost is typical), or interest-rate risk on variable construction rate. Always model with a buffer.