What's a construction loan?

A construction loan provides financing for building costs while real estate is under development. A construction loan features multiple loan amounts advanced to the borrower at agreed-upon construction milestones.

Accurate Construction Loan Calculator™

Q: What is a construction loan calculator?

A construction loan calculator can track multiple loan advances made at irregular intervals along with the borrower's payments. The calculator will use these inputs to calculate the loan's balance.

Q: What are the two types of construction loans?

Stand-alone construction loan - borrower must also apply for a mortgage as a separate step Construction-to-permanent - guaranteed to convert to a mortgage

Create an accurate construction loan payment schedule.

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A construction loan provides short-term financing to cover building costs while a property is being developed. Unlike traditional mortgages, funds from a construction loan are disbursed in phases—at predetermined construction milestones—rather than as a single lump sum.

What is a construction loan calculator?

A construction loan calculator tracks multiple loan disbursements issued at irregular intervals, along with any borrower payments. Using these inputs, the calculator determines the outstanding loan balance at any given time.

How do you use the Accurate Construction Loan Calculator (ACLC)?

This tutorial will guide you through the process step by step. By the end, you will know how to use the calculator to monitor payments and calculate the loan balance as of any selected date.

How construction loans differ from traditional mortgages

Lenders generally do not issue a mortgage on a building that has not yet been constructed. In these situations, a future homeowner must apply for a home construction loan.

Unlike mortgages, which involve a single disbursement, construction loans are issued in multiple draws. The borrower, builder, and lender agree on the total cost of construction and the portion to be financed. Instead of receiving the full loan amount upfront, the borrower receives funds incrementally as each construction milestone is completed.

This incremental disbursement structure reduces risk for the lender and potential cost for the borrower. For example, if the full loan were paid out at the start and the builder defaulted, the borrower would still be responsible for repaying the full amount. By controlling disbursements, the lender protects both parties.

When working with a reputable builder, such issues are uncommon. Still, construction loans help reduce financial risk and limit interest costs.

Why construction loans can save money

Borrowers pay interest only on the funds actually drawn—not the full loan amount. As additional disbursements are made over time, the outstanding loan balance increases gradually, helping to manage total interest costs.

While the savings may not always be large, reducing interest charges is beneficial. However, interest rates for construction loans are usually higher than those for traditional mortgages, reflecting the increased risk to the lender during the construction phase.

More below…

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Calculatrice Précise de Prêt à la Construction (French)

Initial Interest Rate?:Initial Compounding?:Schedule Type?:Calculation Method?:

Cash flow details.
Idx	#	Series	Date	Amount	#	Frequency	Date	Series Options	CmpFreqVal	SpecialSeriesType	SpecialSeriesStruct	DateVal	EndDateVal	SeriesVal	PmtFreqVal
									9	10	11	12	13	14	15

$ : MM/DD/YYYY

Information

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(UFC *.xml, C-Value! *.cv1, and TValue™ *.tv5 files)

What Are the Two Types of Construction Loans?

Stand-alone construction — the borrower must also apply for a mortgage separately, in addition to the construction loan.
Construction-to-permanent — automatically converts to a mortgage, usually when the certificate of occupancy (CO) is issued by the local authority.

The loan type does not affect how the calculation is set up. However, for the borrower, the construction-to-permanent loan is generally more advantageous because there is no risk of being unable to secure a mortgage after construction.

That said, a construction-to-permanent loan agreement may include terms requiring the borrower to convert the loan to a mortgage with the same lender or face a penalty. This condition can be a disadvantage if interest rates decline during the construction period, as the borrower may be locked into a higher mortgage rate.

Plus Two Amortization Methods

Once the lender begins advancing funds to the builder, the borrower is usually required to begin making regular periodic payments. Whether the loan is stand-alone or construction-to-permanent, there are two standard ways to calculate the required payment:

The payment includes both principal and interest (P&I); or
The payment includes interest only.

The Accurate Construction Loan Calculator supports either payment type and can generate a complete amortization schedule.

This calculator also works equally well for both home construction loans and commercial construction loans.

Below are the step-by-step instructions. Since interest-only construction loans are more common, we will begin with that option.

All users should first complete the more detailed initial tutorial to understand the Ultimate Financial Calculator’s (UFC) basic concepts and settings.

A Step-by-Step Tutorial
Calculate a Construction Loan with Multiple Loan Advances — Tutorial 11

How to get an accurate construction loan payoff schedule.
Watch on YouTube

Interest-Only Construction Loan

To create a construction loan amortization schedule with interest-only payments, follow these steps:

Set Schedule Type to Loan.
- Or click to remove any previous entries.
Click Settings > Rounding Options, and set Rounding to Adjust the last amount to reach 0 balance.
In the header section, apply the following settings:
1. For Calculation Method, select U.S. Rule.
  - Setting U.S. Rule prevents interest from being charged on accrued but unpaid interest when a new loan amount is advanced. Switch to Normal to compare the results.
2. Set Initial Compounding to Exact/Simple.
3. Enter 5.5 for the Initial Interest Rate.

In row 1 of the cash‑flow input area, create a Loan series:
1. Set the Date to May 16.
2. Set the Amount to 75,000.00.
3. Set # Periods to 1.
  - Note: Because the number of periods is 1, you will not be able to set a frequency. If a frequency is entered, the calculator will remove it when you leave the row.

Move to the second row of the cash‑flow input area. Create the anticipated payment schedule:
1. Select Payment for the Series.
2. Set the Date to July 1.
3. Set the Amount to Unknown by typing U.
4. Set # Periods to 5.
  - Why 5? We expect construction to last five months with payments due on the 1st of each month.
  - This number can be adjusted later if needed.
5. Press Tab to move to Frequency. Select Monthly.
6. The calculator will automatically calculate the End Date.
7. Click . Select Interest-Only, then click Activate "Interest-Only" payment amount for currently selected series. Click Save Changes.
  - If # Periods is set to 1, the button may not appear. Temporarily set it to 2 to access the options, then change it back to 1 if needed.

Your calculator should now look like this (Fig. 1):

Interest-only construction loan—first disbursement with payment series — Fig. 1 — First disbursement and anticipated interest-only payment series.

Construction is progressing. Enter three more loan disbursements.

In row 3 of the cash‑flow input area, create a Loan event:
1. Set the Date to July 12.
2. Set the Amount to $35,000.00.
3. Set # Periods to 1.
Move to row 4. Select Loan for the Series:
1. Set the Date to July 26.
2. Set the Amount to $40,000.00.
3. Set # Periods to 1.
Move to row 5. Select Loan for the Series:
1. Set the Date to Sept. 10.
2. Set the Amount to $90,000.00.
3. Set # Periods to 1.

Your screen should now appear like this (Fig. 2):

Construction loan with three additional disbursements — Fig. 2 — Add three additional loan disbursements as construction continues.

We expect to receive the certificate of occupancy and convert the construction loan to a mortgage on November 10. Calculate the outstanding loan balance, including accrued interest.

In row 6, select Payment for the Series:
1. Set the Date to Nov. 10.
2. Type U to set the Amount to Unknown.
3. Set # Periods to 1. See Fig. 3.

Setup to calculate loan balance with accrued interest — Fig. 3 — Setup to calculate the outstanding loan balance, including accrued interest.

Now calculate the final payment due. See Fig. 4.

Final loan balance with accrued interest — Fig. 4 — Loan balance as of Nov. 10: **$240,330.00**.
($240,000 principal plus $330.00 accrued interest)

After calculation, row 6 displays the loan balance due as of the specified date. Change the date—even by one day—set it to Unknown, and recalculate. The final payment will adjust accordingly.
The periodic interest payments also change as additional disbursements occur. Refer to the amortization schedule for full details.
If the borrower misses any scheduled payments, click and update the payment dates accordingly.
If construction extends beyond the original timeline:
1. Change the projected number of payments, or
2. If the rows have already been expanded and edited, insert a new, single interest-only payment row.

Click to view the detailed interest-only amortization schedule. See Fig. 5.

Interest-only amortization schedule with multiple disbursements — Fig. 5 — Amortization schedule showing interest-only payments for the construction loan.

Construction Loan with Principal and Interest Payments

To create a construction loan amortization schedule with P&I (principal and interest) payments, follow these steps:

Set Schedule Type to Loan.
- Or click to clear any previous entries.
Set Rounding to Adjust the last amount to reach 0 balance by clicking Settings > Rounding Options.
In the header section, apply the following settings:
1. For Calculation Method, select Normal.
2. Set Initial Compounding to Monthly.
3. Enter 7.25 for the Initial Interest Rate.

In row 1 of the cash‑flow input area, create a Loan series:
1. Set the Date to September 13.
2. Set the Amount to $75,000.00.
3. Set # Periods to 1.
  - Note: Since the number of periods is 1, you will not be able to set a frequency. If a frequency is set, the calculator will clear it when you leave the row.

Move to row 2 of the cash‑flow input area. Select Payment for the Series. The regular payment amount is currently unknown. To keep payments manageable, we’ll calculate an amount based on a 15‑year term (180 monthly payments)—even though the loan will be repaid much sooner.
1. Set the Date to October 1.
2. Set the Amount to Unknown by typing U.
3. Set # Periods to 180.
4. Use the Tab key to move to Frequency. Select Monthly.
5. The End Date will be calculated automatically.

Your calculator should now look like this (Fig. 6):

Construction loan first borrow — Fig. 6 — Construction loan: the first borrow and first payment calculation.

Calculate the unknown. The result is $683.00. Fig. 7.

Construction loan first payment — Fig. 7 — First payment calculated.

Reset the # Periods for the first payment series to 1. This is necessary because only one payment occurs before the next loan advance.
Create a Loan event in row 3 of the cash‑flow input area:
1. Set the Date to October 12.
2. Set the Amount to $35,400.00.
3. Set # Periods to 1.
Move to row 4 of the cash‑flow input area. Select Payment for the Series. The regular payment amount is unknown:
1. Set the Date to November 1.
2. Set the Amount to Unknown by typing U.
3. Set # Periods to 179 (180 months less one payment already made).

Before the calculation, your screen should resemble this (Fig. 8):

Construction loan second borrow — Fig. 8 — Second borrow and payment setup.

Calculate the unknown. The result is now $1,006.65. Fig. 9.

Construction loan second payment — Fig. 9 — Second payment calculated.

There are two additional loan advances to enter, both in November.

Reset the # Periods for the second payment series (row 4) to 1.
Create a Loan event in row 5 of the cash‑flow input area:
1. Set the Date to November 8.
2. Set the Amount to $110,500.00.
3. Set # Periods to 1.
Second loan event in November:
1. Create a Loan event in row 6 of the cash‑flow input area.
2. Set the Date to November 29.
3. Set the Amount to $110,500.00.
4. Set # Periods to 1.
Move to row 7 of the cash‑flow input area. Select Payment for the Series. The regular payment amount is unknown:
1. Set the Date to December 1.
2. Set the Amount to Unknown.
3. Set # Periods to 178 (180 months less two payments already made). Fig. 10.

Before calculating, your screen should look like this:

Construction loan two loan advances — Fig. 10 — Two additional loan advances added.

Calculate the unknown. The result is now $3,029.55. Fig. 11.

Construction loan third payment series — Fig. 11 — Third payment series calculation.

Construction is complete — the mortgage closes on January 16. What is the balance due?
1. Click row 7. Set # Periods to 2 (for payments due on Dec. 1 and Jan. 1).
2. Click row 8. Set the Series to Payment.
3. Set the Date to January 16.
4. Set the Amount to Unknown. Fig. 12.
5. Set # Periods to 1.

Construction loan unknown balance — Fig. 12 — Setting up to calculate the unknown balance.

Construction loan final balance — Fig. 13 — Calculated total balance due.

To view a detailed amortization schedule showing how each monthly payment is allocated between principal and interest, click the tab.
To visualize the cash‑flow timeline, click the tab.

Some final notes: Construction loans are not mortgages. They are temporary financing tools used to fund building projects. Because lenders take on more risk during the construction phase, the interest rate is typically higher than a standard mortgage rate. Once construction is complete and a certificate of occupancy (CO) is issued, these loans are usually converted into conventional mortgages.

The flexibility of the UFC allows you to precisely model the staggered loan disbursements and changing payment structures common in construction financing.

If you have any questions about the Accurate Construction Loan Calculator, feel free to leave them in the comment section below.

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Questions?
Ask them here. We're happy to help.

Anthony Hosseini says:
November 26, 2019 at 8:14 pm
Hello:
On row 2 of the cash flow, series option doesnt allow me to adjsut as the first row of the cash flow it was defaulted giving me options.
Thank you.
Anthony
- Karl says:
  November 26, 2019 at 10:14 pm
  Sorry, but I don’t think I understand. Are you saying that the series option/setting (the dropdown) doesn’t give you choices in the 2nd row. If you have selected "Loan" in the first row, then you should have choices for loan, payment, extra payment, etc. in the 2nd row. If this is not what you see, please provide me with all the details of all inputs for both rows.
  Just curious, if you step through the samples in the text on the page, can you do each of those steps.
  What browser are you using? Are you on a desktop computer?
  No one has reported any issues.
Ray LaCroix says:
January 29, 2020 at 7:35 pm
Is there a way to save results from free calculators?
Thanks,
Ray
- Karl says:
  January 29, 2020 at 8:23 pm
  No. That’s the reason for considering a purchase of C-Value. It runs on Windows computers and costs $49.95. (I’ve got to make a buck or two. 🙂 )
Emma says:
May 21, 2022 at 5:51 pm
Thank you! This is perfect. I tried creating my own spreadsheet to work this out. I could get there eventually, but it’d be pretty crude.
Will C-Value run more or less the same way? I’d like to support you and I’d also like to be able to save my work.
- Karl says:
  May 22, 2022 at 4:22 am
  Yes, C-Value works the same way. Thank you for your support!