Skip to content

    Under active development. New calculators and features ship every week. Everything currently runs free while the site matures — pricing pages are a preview, checkout is not open yet.

    Search ⌘K
    Calculates locally in your browser · construction facility
    Development / construction loan

    Construction loan calculator

    A construction facility is drawn down as the build progresses, so interest accrues on the average balance rather than the commitment. This calculator sizes the interest reserve, the equity gap and the loan-to-cost ratio that lenders underwrite to.

    Term12 moRate8.00%LTC80%
    Interest reserve
    $320,000
    12 months on the average draw
    Total repayment
    $8,320,000
    Principal plus capitalised interest
    Loan-to-cost
    80.0%
    Lender exposure against total cost
    Peak monthly interest
    $53,333
    At full draw
    Facility summary
    What the bank funds, what the interest costs, and what the borrower must bring.
    $8,000,000
    Facility summary
    ItemAmount
    Total development cost$10,000,000
    Loan commitment$8,000,000
    Equity required$2,000,000
    Interest reserve$320,000
    Total debt$8,320,000
    Interest as % of loan4.0%

    Interest is capitalised into the facility, which is standard for construction lending.

    Inspect the model
    Choose a quick result view, a scaled comparison, or the complete diagnostic set.
    Interest against build period
    Interest accrues on the average outstanding balance, so it scales with time.
    Interest against build period$0$197.1k$394.2k$591.4k$788.5k$985.6k33669912121515181821212424272730303333Interest
    Canonical equations
    The exact relationships implemented by this engine.

    loan × rate × months/12 × average draw · 50% average draw is the usual planning assumption.

    loan / total cost · Typically capped at 65–80%.

    capitalised into the facility · Paid from the loan, not by the borrower upfront.

    finance methodology

    A clear path from inputs to results.

    A construction facility is drawn down as the build progresses, so interest accrues on the average balance rather than the commitment. This calculator sizes the interest reserve, the equity gap and the loan-to-cost ratio that lenders underwrite to.

    Step-by-step methodWorked exampleAssumptions explained

    How to use

    1. Enter the total development cost.
    2. Set the loan commitment.
    3. Enter the rate and the build period.
    4. Read the interest reserve, LTC and equity requirement.

    The formula

    I=L⋅r⋅m12⋅dˉ,dˉ=0.5I = L \cdot r \cdot \frac{m}{12} \cdot \bar{d}, \qquad \bar{d} = 0.5

    Reference: Interest capitalised on the average outstanding balance, the standard construction draw convention (Broverman, Mathematics of Investment and Credit).

    Worked example

    $10M cost, $8M loan, 8%, 12 months

    Inputs
    • Total cost $10,000,000.
    • Loan $8,000,000.
    • Rate 8%.
    • Build period 12 months.
    Calculation path
    1. 1

      Average draw 50%, so average balance $4,000,000.

    2. 2

      Interest: 8,000,000 × 0.08 × 1 × 0.5 = $320,000.

    3. 3

      Total repayment: $8,320,000.

    4. 4

      Loan-to-cost: 80%.

    5. 5

      Equity required: $2,000,000, plus the interest if it is not capitalised.

    Result

    Interest reserve $320,000 · LTC 80% · equity $2M.

    Interpreting the result

    The interest reserve is the line item sponsors underestimate. A twelve-month build at 8% costs 4% of the loan; a delayed build costs proportionally more, and the reserve is usually the first thing to run dry.

    Assumptions & limitations

    • Interest capitalised into the facility.
    • Average draw of 50% over the build.
    • No fees, carry or extension costs.
    • Single draw curve; real projects draw against completed work.

    Frequently asked questions

    Why 50% average draw?

    Draws typically follow an S-curve, so the average outstanding balance is around half the commitment.

    What if the build runs late?

    Interest accrues for longer; the calculator lets you extend the build period to see the cost.

    Is LTC the same as LTV?

    No. LTC is against cost during construction; LTV is against value after completion.

    Methodology last reviewed 2026-10-21. Results are informational and not financial or engineering advice — see our disclaimer.