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.
You pay interest on the cumulative drawn amount — not the full approved loan. Early months may have minimal or zero draws, so payments start low and grow as the builder requests funds.
Each approved draw adds to the outstanding balance. Your monthly interest-only bill recalculates based on the new total drawn. Budget for gradual increases through the middle of the build.
Once the home passes final inspection and receives a certificate of occupancy, the construction phase ends. The loan converts to a standard amortizing mortgage with principal and interest.
One-time close files roll into permanent financing on the same note — often without a second closing event. Two-time close requires refinancing or closing a new permanent loan, and P&I begins at that second closing.
Ryan and Steve help you model total housing cost from groundbreaking through move-in.
Step 1
Ask for a draw schedule projection so you know how interest-only payments may grow month to month.
Step 2
If you are renting or paying another mortgage during the build, factor that alongside construction interest.
Step 3
Know whether your file is one-time or two-time close and when full P&I will begin.
Step 4
Understand how rate locks interact with construction timing and permanent conversion.
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.
2MG Daily
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Usually no. During the construction phase, most programs require interest-only payments on the amount drawn so far — not the full loan amount. As each draw is released, your interest-only payment may increase because it is calculated on the outstanding construction balance.
Full P&I payments typically begin after the home is completed and the loan converts to permanent financing. With a one-time close, conversion may happen automatically without a new closing. Two-time close files require a second closing for the permanent mortgage, and P&I starts then.
During construction, escrows for taxes and insurance may not be fully established yet — you might pay interest only. After permanent conversion, taxes, insurance, and mortgage insurance (if applicable) are usually escrowed with your full monthly payment.
No. Payment timing, interest calculation methods, and escrow setup vary by program and lender. This page is educational only and is not a commitment to lend. Ryan and Steve explain your specific payment timeline before you close.
Ryan & Steve model interest-only payments during construction and your permanent P&I after conversion — so you can budget confidently from day one.