Construction-to-Permanent Loan Calculator
Calculate total financing costs for building a home, including interest-only payments during construction and the permanent mortgage payment after conversion. Use it when planning new construction or major renovation financing.
About this calculator
A construction-to-permanent loan has two distinct phases. During construction, interest accrues only on the drawn balance, not the full loan amount. Since draws are made gradually, the average balance is roughly 50% of the total loan, so construction interest ≈ (Loan Amount × 0.5 × Construction Rate × Construction Term in years). After the build, the loan converts to a standard 30-year amortizing mortgage. The permanent monthly payment is M = P × [r(1+r)³⁶⁰] / [(1+r)³⁶⁰ − 1], where P = total project cost minus down payment, and r = permanent rate ÷ 12. The formula in this calculator combines both: total cost = construction interest + first month's permanent payment. This gives borrowers a clear picture of how much financing will cost from groundbreaking through the first payment of the permanent mortgage.
How to use
Suppose total project cost is $500,000 with a $100,000 down payment, a 9% construction rate over a 12-month build, and a 7% permanent rate. Loan amount = $400,000. Construction interest = $400,000 × 0.5 × 0.09 × (12/12) = $18,000. Permanent monthly payment: r = 7%/12 = 0.5833%; M = 400,000 × [0.005833 × (1.005833)³⁶⁰] / [(1.005833)³⁶⁰ − 1] ≈ $2,661. Total output = $18,000 + $2,661 = $20,661 (construction interest plus first permanent payment).
Frequently asked questions
How does interest work during the construction phase of a construction-to-permanent loan?
During construction, the lender releases funds in stages called draws as work is completed — foundation poured, framing done, etc. You only pay interest on the cumulative amount drawn, not the full approved loan, which is why the average balance is modeled at approximately 50% of the total loan. These are interest-only payments, meaning no principal is being paid down during construction. Once the certificate of occupancy is issued, the loan converts and full amortizing payments begin. This structure means your cash outlay during construction is relatively low, but it's important to budget for both phases.
What is the difference between a construction-to-permanent loan and a standalone construction loan?
A construction-to-permanent loan (also called a 'one-time close') automatically converts to a permanent mortgage when construction is complete, requiring only a single closing and one set of closing costs. A standalone construction loan must be paid off or refinanced into a separate permanent mortgage at completion, resulting in two closings, two sets of fees, and exposure to interest-rate risk if rates rise during the build. The one-time-close option provides cost certainty and simplicity, though some borrowers prefer standalone loans if they want the flexibility to shop for the best permanent mortgage rate after construction.
Why are construction loan interest rates typically higher than standard mortgage rates?
Construction loans carry more risk for lenders because the collateral — the finished home — doesn't yet exist when the loan is made. If construction stalls, the borrower defaults, or the completed home appraises below projected value, the lender has limited recourse. To compensate for this risk, construction rates are often 1%–2% above comparable 30-year fixed mortgage rates and are frequently variable (tied to the prime rate). Additionally, lenders require detailed builder contracts, plans, and cost breakdowns before approval. Borrowers with strong credit, significant down payments, and experienced licensed contractors typically qualify for the most competitive construction rates.