A construction loan is paid in two stages, so it has two payments. During the build you pay interest only on the funds drawn (drawn balance × rate ÷ 12). When the loan converts to a permanent mortgage, it amortizes with the standard formula M = P[r(1+r)^n] / [(1+r)^n - 1]. The calculator below shows both, plus total interest across the build and the permanent term.
Most calculators only do a plain mortgage payment, which misses the whole point of a construction loan: the interest-only build phase and the amortized permanent phase are two different numbers. This one shows both so you can plan your cash flow through the build and after it. For how the loan itself works, see construction-to-permanent financing.
How the Math Works
A construction-to-permanent loan runs in two phases, each with its own payment math:
Build phase (interest-only): payment = balance × (rate ÷ 12)
Permanent phase: M = P[r(1+r)^n] / [(1+r)^n - 1]
The Interest-Only Build Phase
During construction you draw funds in stages, and you pay interest only on what you have actually drawn. Early in the build your balance is small, so the payment is small; it grows as you draw more. The calculator estimates the interest-only payment on the full amount — a conservative, fully-drawn figure — so your real early payments are usually lower.
The Permanent Payment
When construction finishes and the loan converts, it becomes a normal amortizing mortgage: principal and interest, on a set term (often 20–25 years for commercial real estate). That is the payment you will carry for the long haul, so it is the number to stress-test against your cash flow.
Worked Example
A $1,000,000 construction-to-permanent loan at 9.5%, 12-month build, 25-year permanent term:
- Interest-only (fully drawn): $1,000,000 × (0.095 / 12) = ~$7,917/mo during construction
- Permanent payment (amortized, 25 yr): ~$8,737/mo
- Interest during the 12-month build (fully drawn): ~$95,000
The calculator returns these instantly — the example shows where they come from.
Typical Construction Rates
Construction-phase rates in 2026 have run ~8–11% (variable, prime + spread); a fixed permanent leg can be lower, and an SBA 504 fixed leg lower still. See construction financing rates for the full picture.
How to Read Your Results
The calculator returns two payments on purpose, because a construction-to-permanent loan bills you two different ways over its life:
- Interest-only (construction) payment — what you owe each month during the build. The calculator shows it on the full amount as a conservative, fully-drawn figure; in reality it starts small and grows as you draw, so treat this as the ceiling for the build phase.
- Permanent payment — what you owe each month after the building is done and the loan amortizes. This is the number to stress-test against your operating cash flow, because you carry it for the full term.
- Total interest — build-phase interest plus permanent-phase interest, so you see the all-in cost of borrowing across both stages.
If the permanent payment looks tight against your projected income, that is the signal to adjust — a larger down payment, a longer term, or a cheaper permanent rate — before you break ground, not after.
More Worked Examples
Two more scenarios to show how the inputs move the numbers:
- Smaller owner-occupied build: $500,000 at 9%, 9-month build, 25-year term — interest-only ≈ $3,750/mo during construction, permanent payment ≈ $4,196/mo.
- Larger project, shorter permanent term: $2,000,000 at 9.5%, 14-month build, 20-year term — interest-only ≈ $15,833/mo, permanent payment ≈ $18,641/mo.
Notice how a shorter permanent term raises the monthly payment sharply while cutting total interest — the classic term trade-off. Run your own numbers above to find the balance that fits your cash flow.
What Changes Your Real Payment
The estimate above is a clean model; a few real-world factors move your actual payment:
- Your draw schedule — because interest accrues only on drawn funds, a project that draws slowly pays less interest during construction than the fully-drawn figure shown.
- An interest reserve — if the lender funds your construction interest from the loan, your out-of-pocket payment during the build can be near zero, but the borrowed amount (and permanent payment) rises.
- A fixed vs floating permanent rate — the calculator assumes one rate; if your permanent rate is set at conversion, the real permanent payment can differ.
Common Construction-Budget Mistakes
The numbers only work if the budget behind them is realistic. The two most expensive mistakes are skimping on contingency (a 5–10% cushion is standard, and overruns are the norm, not the exception) and forgetting the interest reserve (you owe interest during the whole build, and it has to come from somewhere). Under-budget either and you can run out of money before the certificate of occupancy — the worst possible moment. Build both into the loan amount you enter above so the estimate reflects what you will actually borrow.
Planning Your Cash Flow Through the Build
The two payments the calculator shows are the anchors of a construction cash-flow plan, but the timing between them is where projects get into trouble. During the build you are carrying the interest-only payment and often paying contractors before the matching draw reimburses you — while, in many cases, still paying rent or a mortgage on your current space. Model all three at once: the growing interest-only payment, the short gaps between doing work and getting drawn funds, and your existing occupancy cost until you move in.
A practical way to use the calculator here is to run your worst month, not your average. Enter the full loan amount to see the ceiling interest-only payment, then confirm your business can cover that alongside current expenses during the busiest, most cash-hungry stretch of the build. Then check the permanent payment against a conservative first-year revenue projection for the new space — not the optimistic one. If both hold up, your financing plan is sound. If the permanent payment is tight, adjust the loan amount, term, or down payment above until it works, because fixing it on paper now is free and fixing it mid-build is not.
One more habit worth building: re-run the calculator whenever a key input changes — a revised budget, a new rate quote, a longer build timeline, or a bigger down payment. Each of those moves both payments, sometimes more than you would expect, and catching the impact early keeps your financing plan in step with the project instead of a step behind it. A five-minute recalculation when your builder updates the budget is far cheaper than discovering the gap when the draw request is already in.
One Loan or Two: Construction-to-Permanent vs Separate Financing
The calculator models a single construction-to-permanent loan, but a build can also be financed with two separate loans: a short-term construction loan, then a separate permanent mortgage — a "takeout" — once the building is finished. A single-close construction-to-permanent loan locks your permanent terms up front and charges one set of closing costs, which protects you if rates climb during the build. Two separate loans give you a second chance to shop the permanent rate, but you pay closing costs twice and carry the risk that rates or your qualification shift before the takeout closes. Run the calculator with each rate scenario to see which path costs less over the full term.
You Have an Estimate — Now Get a Real Rate
A calculator uses the rate you type in. The payment you actually get depends on the rate, term, and fees a lender offers on your project — and on a construction loan those vary widely from one lender to the next.
Tell us about your project once and compare real construction and SBA 504 quotes side by side, so the number you plug in here is one a lender would actually honor.
Frequently Asked Questions
How do you calculate a construction loan payment?
In two parts. During construction you pay interest only, so the monthly payment is the drawn balance times the monthly rate (rate/12). After the loan converts to permanent, it amortizes: M = P[r(1+r)^n] / [(1+r)^n - 1]. The calculator above shows both the interest-only construction payment and the permanent payment.
What is the interest-only construction payment?
During the build you only pay interest on the money you have drawn, not the full loan. This calculator estimates the interest-only payment on the full amount (a conservative, fully-drawn figure); your early payments are usually lower because you have not drawn the whole loan yet.
What rate and term should I use?
Use ~8-11% for the construction phase and a permanent term of 20-25 years for commercial real estate. If you are comparing a construction-to-permanent loan, use the permanent rate you have been quoted for the amortizing payment.
Does this work for a construction-to-permanent loan?
Yes. Enter the construction period in months (interest-only) and the permanent term in years; the calculator shows the interest-only payment during the build and the fully amortized payment after conversion, plus total interest across both phases.
Is the estimate a loan offer?
No. It is a planning estimate. Your real payment depends on the exact rate, draw schedule, term, and fees a lender offers. Use it to compare scenarios, then get a real quote.