Construction To Perm Rate Gap Calculator

Construction to permanent transitions often carry meaningful rate gaps.

Loan balance

Construction rate %

Permanent rate %

Construction months

Permanent term years

Rate gap cumulative impact

$900,000

Monthly payment difference

$50,000

Annual savings at perm

$600,000

How the math works

Impact = balance × (construction − perm rate) × (months/12). Annual savings after transition = balance × gap.

$40M × 1.5% × 1.5 yr = $900k extra cost during construction. $600k/yr savings after transitioning to perm.

How to Use

Enter construction loan balance.
Enter construction rate %.
Enter permanent rate %.
Enter construction months.
Enter permanent term years.
Read rate gap impact.

Frequently Asked Questions

Why is there a rate gap?

Construction loans carry higher rates (7-10% in current market) because of construction risk (cost overrun, schedule delay, completion default). Permanent loans carry lower rates (5-7%) because stabilized asset with cash flow. At construction completion, borrower refinances to permanent — often at 150-300 bps lower rate. Rate gap is the cost of construction risk period.

When does refi happen?

At substantial completion + stabilization: typically 12-24 months post-groundbreaking. Some markets lock perm rate at construction loan closing (mini-perm or construction-to-perm combined facility). Others float — perm rate available at completion. Institutional sponsors use rate locks at closing when rate environment is favorable; take floating risk when environment is negative (better perm rate expected).

Mini-perm vs construction loan + perm?

Mini-perm: combined construction + 3-5 year permanent facility with single lender, single set of docs. Simpler, sometimes higher all-in cost. Construction loan + separate perm: different lenders, different docs, more complex but often better pricing. Large projects ($50M+) usually do separate; small projects ($10-25M) sometimes combine. Either way, plan the rate gap.

Rate lock economics?

Locking perm rate at construction close: extends exposure to today's perm rate for entire construction period. Premium: 25-100 bps over spot rate. Hedge strategy if rates expected to rise. Floating: accept market rate at completion. Rate cap: buy optionality to floor rate at strike (if rates fall, take spot; if rise, cap kicks in). Cost: 1-3% of notional. Each approach has risks worth stress-testing.