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Construction Loan

How construction loans work, what you pay while the home is being built, one-close vs two-close loans, the tax rule for construction interest, and a calculator.

Updated November 4, 2026. Free, no sign-up; everything runs in your browser and nothing you type is stored.

Construction loan draw and interest calculator

Construction loan amount ($)Construction rate (%)Cumulative % drawn each month (comma-separated)Permanent mortgage rate after (%)

Interest paid during construction

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–Highest interest-only payment

–Payment once it converts to a 30-year loan

–Construction period

How a construction loan works

A construction loan is usually a short-term loan to build or rehab a home. The lender pays the money out in a series of advances (draws) as the work reaches milestones, usually after an inspection, and you typically pay interest only on what's been drawn. Rates are generally higher than on a regular mortgage, and payments on the balance may start six to 24 months after the loan is made. At the end you pay it off, often with a permanent mortgage (CFPB).

Example: a $400,000 loan at 8% drawn in 10 equal monthly steps and fully drawn for the last 3 months costs $20,000 of interest over 12 months; the payment climbs from $267 to $2,667.

One closing or two?

Construction-to-permanent (single close): one application and one set of closing costs; the loan converts to a regular mortgage when the home is finished, often with the rate locked up front.
Two-time close: a separate construction loan, then a new mortgage. More closing costs and requalifying, but you can shop the permanent rate when building ends.

Deducting construction interest

You can treat a home under construction as a qualified home for up to 24 months, so the interest can be deductible mortgage interest, but only if it becomes your qualified home when it's ready to live in (IRS Publication 936). Compare the finished mortgage with the mortgage payment calculator.

Common questions

How do construction loan payments work?

You usually pay interest only on the amount drawn so far, so payments rise as the build progresses.

What is a construction-to-permanent loan?

One loan and one closing that converts to a regular mortgage when the home is finished.

Is construction loan interest deductible?

For up to 24 months, if the home becomes your qualified home when ready for occupancy.

Sources

More mortgage and home calculators: Ad Valorem Tax · Apply Section 8 · How to Get Pre Approved for a Home Loan

General information, not financial, tax or legal advice. Check important numbers with the official source before acting on them.