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Interest Reserve Draw Calculator
Construction loan interest reserves fund loan interest from loan proceeds during build and lease-up — avoiding equity cash calls. This calculator sizes the reserve accounting for average balance outstanding during construction (builds up over time) and lease-up (loan fully drawn).
Recommended interest reserve
$1,858,313
Total interest accrued
$1,689,375
Construction period interest
$1,051,875
Lease-up period interest
$637,500
10% cushion above base
$168,938
How the math works
Interest reserve funds interest payments from loan proceeds during construction and lease-up. Typical structure: construction period at 50-60% avg outstanding, lease-up at 90-100%. Adding a 10% cushion protects against longer-than-expected timelines.
Running out of interest reserve triggers a cash-in from equity. Always size conservatively — lender may require 125% of base interest calculation as the minimum reserve.
How to Use
- Enter loan amount and rate.
- Enter construction months and average balance outstanding during construction (typically 50-60%).
- Enter post-completion lease-up months and expected balance (typically 100%).
- Read recommended reserve size.
Frequently Asked Questions
Why not 100% of loan during construction?
Loan funds in draws. Month 1 balance is small; month 18 balance approaches max. Average over the period is typically 50-60% for typical construction draw curves.
What happens when reserve runs out?
Borrower must fund interest out of equity. Lender sometimes allows replenishment from a new equity contribution. Best to size conservatively upfront — running out mid-project is expensive.
Does reserve earn interest?
Usually minimal — reserves typically sit in operating account earning 0-3%. Some banks will pay market rate on larger balances. Factor into total project cost either way.
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