A construction loan is a short-term interim loan to finance the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.
- Periodic disbursements based on completion percentages of building.
- Interest paid only on amount of loan disbursed.
- The construction loan is typically for a 6-month period which normally gives the builder sufficient time to complete the building process.
- Upon completion, the construction loan would be paid off with a permanent mortgage loan.
The construction/permanent loan is one loan with an initial construction period. When the initial construction term has expired (typically six months), the loan automatically rolls over to a permanent loan.
- One loan closing to help reduce costs.
- The ability to lock in the interest rate at the first construction draw.