During construction, you typically pay interest only on the amount drawn so far — not the full loan balance. After your home is completed and the loan converts to permanent financing, full principal-and-interest payments begin, usually with taxes and insurance escrowed into your monthly bill.
Construction financing splits into a build phase and a permanent phase. During construction, the lender has not yet disbursed the full loan — funds release in draws as work completes. Your payment reflects only what has been drawn, calculated as interest-only on that outstanding balance.
As draws increase through foundation, framing, and finishes, your interest-only payment rises gradually. This is often more manageable than paying P&I on the full loan amount while the house is still a job site.
When the build is complete and the loan converts — automatically on a one-time close or at a second closing on a two-time close — your permanent mortgage payment kicks in with principal, interest, taxes, and insurance as applicable.
Planning for both phases helps you budget housing costs while you may still be renting or carrying another mortgage.
Ryan and Steve help you model total housing cost from groundbreaking through move-in.
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Related guides on close types, draws, and rate locks.
Single closing that converts to permanent financing when the build finishes.
Separate construction and permanent loans with two closings.
Milestone draws and how drawn balances affect interest-only payments.
Rate lock windows during construction and at permanent conversion.
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Recent articles on construction loan payments, one-time close, and build-to-permanent financing.
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Ryan & Steve model interest-only payments during construction and your permanent P&I after conversion — so you can budget confidently from day one.