A construction loan is a mortgage agreement designed specifically for those who are building a new home. This is how it works:
This amount is then broken down into â€˜progress paymentsâ€™; separate payments that come out of your mortgage fund
and are made at each phase of the building process to the builder. The lender will only require you to pay interest due on the amounts drawn. Letâ€™s use this construction loan example to demonstrate.
If you loan is for $300,000 and your first invoice is for $55,000, the interest will be calculated on your account balance of
$55,000 as well as fees. Full principal and interest payments begin once the house is built and you are in your home.