How Do Interest-Only Payments During Construction Work?

Many are confused on exactly how interest-only payments during construction really work. Here are the basics:

At closing, there may be multiple disbursements:

1. Your builder may request an initial disbursement. This is usally 5 - 10% of the cost to build.

2. You may be purchasing your lot or land, or you may be paying off your land.

3. You may be using equity you have in your lot to pay your closing costs.

Calculating the Monthly Interest Payments:

1. Monthly period ends on the 15th of the each month.

2. The balance at that time will dicatate the amount of the monthly interest payment due.

3. Statements are generated and delivered to the client by the 20th.

4. Interest Payments are due on the 1st of the month, and considered late if not received by the 16th.

Draws may not be taken every single month a home is under construction; therefore, the interest payment could remain the same for more than a single month.

Once your home is complete, if you are in a single-close construction to permanent loan, your loan will convert to a fully-amortizing payment, which includes principal and interest, and if you are escrowing, property taxes, homeowners insurance, and any applicable private mortgage or flood insurance payments.

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