What are the interest payment terms for a construction loan rolling over to a permanent mortgage?

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During the construction phase of a build-on-your-lot loan, you pay interest only on the outstanding balance for the previous 30 days, with no principal amortization until the loan rolls over to your permanent mortgage. This structure simplifies cash flow management by aligning payments with actual construction draws rather than a fixed amortization schedule.

• Interest Calculation Basis: The construction loan uses simple interest calculated monthly. You are responsible for paying the lender for the interest accrued specifically on the previous 30 days' balance, which varies as more construction funds are drawn.
• Roll-Over Conversion: The bank specifies a definite date before home completion when the loan converts to the prearranged permanent mortgage. After this roll-over date, you begin making monthly payments that are fully amortized over the term of your new permanent loan.
• Guaranteed Rate Locks: Most preferred lenders guarantee your permanent mortgage financing terms and interest rates until construction is completed, protecting you from rate fluctuations during the build period.
• Loan Duration Flexibility: Construction loans typically run for twelve months but can be extended if construction delays occur, ensuring your financing covers the actual project timeline without unnecessary gaps.
• Integrated Financing: This single-settlement program often allows lenders to pay off existing mortgages on your lot, incorporating that balance directly into the new construction-to-permanent loan structure for streamlined financial management.

admin · 2026-10-11 17:45:46