New — cash-flow forecasting, snagging lists & variation tracking are live. See what's new →

Guide · US · Financing costs

Construction loan interest when rates are high: budget an interest reserve

On a construction loan you usually pay interest only on the amount drawn so far, so the monthly interest rises as the build goes on. Rates are high right now, and this page shows how that interest adds up and how to set money aside for it.

Not lending or financial advice. Your loan terms (rate, draw schedule, fees and whether interest is paid monthly or from a reserve) come from your lender. The example below is for illustration only.

Last updated 2 November 2026.

Try Self-Build sandboxUS market overview

Where rates are

Freddie Mac's Primary Mortgage Market Survey put the 30-year fixed-rate average at 7.24% as of 29 October 2026, down from 7.32% the week before. A year earlier it was 6.17%. The 15-year fixed average was 6.60%. That is a mortgage benchmark, not a construction-loan rate. Construction loans are priced separately by each lender, so use the rate on your own term sheet.

Illustrative example: $400,000 at 8% over 10 months

ILLUSTRATIVE ONLY. These are not real loan terms or a quote. Assumptions: a $400,000 construction loan at 8% a year, interest only, charged monthly on the drawn balance (8% ÷ 12 of the balance after that month's draw). The draws are 15% in month 1, 10% in each of months 2 to 9, and 5% in month 10, making 100%.

Total interest over the 10 months: $15,866.67, about 4% of the loan. If you had paid interest on the full $400,000 from month 1, the cost would have been $26,666.67. Real totals depend on when the draws actually happen, so delays in the build mean more months of interest on a larger balance.

  • Month 1: draw 15% → drawn balance $60,000 → interest $400.00
  • Month 2: draw 10% → drawn balance $100,000 → interest $666.67
  • Month 3: draw 10% → drawn balance $140,000 → interest $933.33
  • Month 4: draw 10% → drawn balance $180,000 → interest $1,200.00
  • Month 5: draw 10% → drawn balance $220,000 → interest $1,466.67
  • Month 6: draw 10% → drawn balance $260,000 → interest $1,733.33
  • Month 7: draw 10% → drawn balance $300,000 → interest $2,000.00
  • Month 8: draw 10% → drawn balance $340,000 → interest $2,266.67
  • Month 9: draw 10% → drawn balance $380,000 → interest $2,533.33
  • Month 10: draw 5% → drawn balance $400,000 → interest $2,666.67

Budget the interest reserve as a cost line

Treat the interest as a build cost. Work out the expected interest from your own draw schedule and your lender's rate, then add a margin for delays. That gives you the interest reserve to include in the budget.

  • Use your lender's rate and draw schedule, not the example above.
  • Allow for the programme slipping: work out what one or two extra months on the full balance would cost.
  • Revisit the estimate when the lender or the programme changes.

Where ConstructionPro.io fits

  • Add an estimated interest reserve as its own cost line in the build budget.
  • Keep it next to your contingency, so financing costs are visible rather than buried.

ConstructionPro.io does not model loan interest, draws or mortgages. You work out the estimate and record it as a cost line. For padding the rest of the budget, see the contingency guide.

Construction loan interest FAQ

How is interest charged on a construction loan?

Commonly it is interest only, on the amount drawn so far, so the payment grows with each draw. Your lender's terms decide how it actually works.

How much interest would a $400,000 construction loan at 8% cost over 10 months?

In our illustrative example (draws of 15%, then 10% a month for eight months, then 5%, with interest at 8% a year on the drawn balance), the total is $15,866.67. Your figure depends on your own rate and draw timing.

What is the current 30-year mortgage rate?

Freddie Mac's PMMS put the 30-year fixed average at 7.24% as of 29 October 2026 (15-year: 6.60%). That is a mortgage benchmark; construction-loan pricing varies by lender.

Does ConstructionPro.io calculate loan interest?

No. It does not model loan interest or draws. You add your estimated interest reserve as a cost line.

Sources

Related guides

Try a Self-Build sandbox

A demo ledger you can throw away. Add an interest reserve as a cost line next to your contingency. We do not model loan interest or draws.

Try Self-Build sandboxStart trial · US market