# How do you calculate the interest on a construction loan?

### 8 Answers

- Anonymous1 decade agoFavorite Answer
Take the current principle and multiply it by the interest rate, then you'll divide it by 12. That will give you the current payment for that draw period. Remember to increase your principle at every draw period (depending on how many draw periods you have). For example:

250,000 x 6.25% = 15,625 / 12 = 1,302.083 <--monthly I/O

Once you have received your CO, then it will convert to a fully amortized payment schedule for the remaining loan term (unless you set it up for a fixed I/O payment for a certain amount if time).

Most construction loans have a higher interest rate, and there for you might want to entertain the idea of refinancing into a lower rate (depending on the current level of interest rate).

Hope this helps, contact me directly if you have any other questions.

Source(s): Loan Consultant - GCatherineLv 44 years ago
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Construction interest is generally based on the amount drawn. If you have a 5% construction interest rate and outstanding draws of $100,000, multiply $100,000 by 5% and you get an annual interest of $5000.00 since you are making the payment for the month divid by 12 and you get $416.67. Interest 'reserves' throws me, unless you mean prepaid interest which would be the amount due on your loan from the day of closing til the first of the month or you might mean Insurance/Tax Reserves which are typically wrong during the construction period. The taxes are calculated on the land value and not the house value and will be adjusted in approximately 18 months after construction. Be ready for a major increase in yoru required tax reserves at that time as they must 'catch up' from the previous 18 months plus collect enough for the next tax installment.

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- 1 decade ago
Interest on a mortgage is calculated in a simple way for an Interest only loan. If you are making an interest only payment, take your rate (i.e. 6.5%) and divide it by 12 which equals .542, make that a percentage, or .00542 and then multiply the loan amount with it. Let's use $200,000, your I/O (int. only) payment is $1083.33/month.

Typically you would get some sort of credit line for construction that will come in 4-6 "chunks". You will on pay for what is being used until you are done.

I hope that helps. If you have more questions. you can email me.

Source(s): www.arizonabestmortgage.com I am a Sr. Loan Consultant in Arizona - 1 decade ago
Most construction loan payments are interest only; your not paying the principal down at all. Most lenders web sites will let you fiddle with the payment calculator if not fill in their scenario pricer... use a Home Equity Line of Credit as your loan of choice since those payments are interest only for 5-10 years. The answer will be correct.

Kevin

Source(s): Licensed Real Estate Agent, Loan Officer - KarenLv 44 years ago
Most lenders will only allow you to lock in a rate for 1 year. If your house is not completed in that year you will risk losing the terms as well as pay penalties. If you are signing a contract with a builder, you will want a lawyer to go over the terms. If not clearly stated add a clause that puts the builder on the hook for additional time. Also there will be one final draw of money from the bank when the builder is complete. Do not allow the builder to draw the final amount until you have had a walked through and have signed off.

- micki_gLv 41 decade ago
Most real estate sites have a loan calculator on them. Instead of using it to calculate the interest on an existing home just type in the figures your using and you will have your answer.