We assume the builder draws the loan in even steps each month. Most real draw schedules land close to that.
Interest over the build, about
$26,406
Starts around $339 a month and climbs to $4,063 a month by the time the loan is fully drawn.
First month
$339
Last month
$4,063
Groundbase tracks each real draw and the interest it costs you.
Start freeA construction loan does not behave like a normal mortgage during the build. You usually pay interest only on what has actually been drawn, which means the monthly number starts smaller and grows as the project moves forward.
Payment type
Interest-only
payment structure during the construction phase
Common assumption
55-65%
common average balance used across a full build
Changes over time
Monthly
interest changes as more of the loan gets drawn
What changes the number most
- How quickly draws go out. Faster draw usage usually means the interest-only payment climbs earlier.
- The interest rate. Even a modest rate change moves both the monthly payment and the total build-phase interest.
- How long the build lasts. Interest is time-sensitive, so schedule overruns turn into cost overruns too.
- How much of the loan is actually used. A loan approved for one number may not end up fully drawn, depending on scope and cash contributions.
A worked example
Take a $650,000 construction loan at 7.5% over a 12-month build, drawn in roughly even steps. In month one only about $54,000 has been drawn, so interest is around $338. By month twelve the whole loan is out, and interest is about $4,062 a month.
Across the build that adds up to about $26,406. Paying interest on the full $650,000 from day one would cost $48,750, so paying only on what has been drawn roughly halves it. That only holds if the build stays on schedule: every extra month at the end costs about another $4,062.
Why people underestimate construction interest
Many people building a home know the loan is interest-only during construction, but they still picture one flat monthly number. That is usually not how it works. The interest amount is tied to the running drawn balance, so the payment evolves across the project instead of staying constant.
The result is that the middle and back half of the build often feel more expensive than expected, especially if the project runs longer or if change orders push more dollars into the loan than originally planned.
How this differs from the finished mortgage payment
Construction interest is a temporary build-phase cost. After the home is complete, the loan typically converts into a permanent mortgage with principal and interest amortized over many years. That finished-home payment is a separate number and is often a surprise if nobody has modeled it early.
Common questions
Do you pay interest on the whole construction loan?
No. During the build you normally pay interest only on the money that has been drawn so far. The payment starts small and grows as each draw goes out.
Are construction loan payments interest-only?
Usually, yes, while the house is being built. Once it is finished the loan typically converts to a regular mortgage, or a new mortgage pays it off, and you start paying principal too.
How is construction loan interest calculated each month?
Multiply the amount drawn so far by the annual rate, then divide by 12. For example, $300,000 drawn at 7.5% costs about $1,875 that month.
What happens to interest if the build runs late?
Interest keeps running, and by the end most of the loan has been drawn, so each extra month costs close to the full-balance payment. Delays are one of the most common reasons construction interest goes over plan.
Keep reading
How Construction Draws Work
What draws are, how lenders release funds, how interest accrues, and how to track the draw schedule through the build.
Read guideConstruction Loan Interest vs Mortgage Payment
Understand the difference between the temporary build-phase payment and the long-term mortgage payment after completion.
Read guideHow Construction Loans Work
How construction loans differ from mortgages, how qualifying works (including as your own contractor), interest-only payments, and converting to a permanent loan.
Read guide