Construction loans are relatively simple in theory, but tend to be much more complex in implementation
To help your budget calculations, this article will explain how they work and how to calculate construction loan payments during the construction period. Most construction loans require interest only payments during the construction time frame and will adjust to include principal, also, after full dispersal.
Step 1
Review your construction loan disbursement schedule. Some lenders prefer – or may mandate – simplicity (it’s less work for them). This may or may not be good for you, too. They may establish only three equal disbursements (30%) with a 10% “hold back” to be paid after a final inspection. Other lenders will allow you to set a schedule that works for you and ounts. This gives you access to funds to pay subcontractors and other charges more frequently. Understanding your disbursement schedule helps you estimate and/or calculate your coming construction loan payments.
Step 2
Learn when construction loan disbursements are posted to your outstanding balance and when payments are due during the construction period. For example, a disbursement made during the last three to five days of a given month may or may not be posted to your loan balance and require interest thereon for your next payment.