Construction Financing Interest Calculator

Construction loans bill interest during draw. This calculator sizes.

Loan amount

Rate %

Construction months

Avg balance % of total

Total interest cost

$1,275,000

Average balance

$10,000,000

Monthly interest at peak

$141,667

How the math works

Avg balance = loan × avg % deployed. Interest = avg × rate × (months/12). Peak monthly = loan × rate / 12.

On $20M loan at 8.5% over 18 months with 50% avg deployment: $1.275M total interest. Peak monthly interest at full draw: $142k. Interest reserve of ~$1.3M typical — ensure adequate at loan signing.

How to Use

Enter total loan amount.
Enter rate %.
Enter construction months.
Enter avg balance % of total.
Read total interest cost.

Frequently Asked Questions

Draw mechanics?

Construction loan draws monthly against completed work. Initial draws small (clearing, foundation). Ramp up during vertical construction. Tail off at closeout. Avg balance typically 45-55% of total loan commitment over construction period.

Rate structure?

Typically Prime + spread (Prime + 1-3%), or SOFR + spread (SOFR + 2.5-4%). Floating rate through construction; converts to perm or refinanced at completion. In low-rate environment: 5-7%; high-rate: 8-11%. Varies dramatically.

Interest reserve?

Lender often requires interest reserve escrow (4-8% of loan). Pays interest from loan proceeds — no out-of-pocket. Once reserve depleted, borrower must fund from other sources. Reserves tighter on recent loans due to rate volatility.

Who owns this risk — sponsor or lender?

Construction risks are typically shared: hard-cost overrun owned by sponsor (via completion guaranty), soft-cost and delay risks shared per contract, force-majeure excused but bears owner carry cost. Document risk ownership in the loan agreement and GC contract before closing. Disputes get expensive when roles are unclear. Institutional deals spell out every allocation in writing.