# How is a construction loan calculated?

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Video answer: How to use construction loans calculator

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#### How do you calculate the payment on a construction loan?

**Multiply your outstanding balance on day one by the per diem rate**for the total days in the month. Multiply the new disbursement by the per diem rate and the number of days between disbursement date and the end of the month. Add the two interest charges together, and you've calculated the expected construction loan payment for the current month.

Video answer: Tutorial: construction draw and interest calculation model

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As construction loans are progressively drawn down, interest is normally calculated based only on the funds used so far. For example, if by the third progress payment, only $150,000 has been drawn down on a $300,000 loan, interest would only be charged on $150,000. Source: Monkey Business Images (Shutterstock)

Construction loans let homeowners borrow money based on the value of the property after the proposed construction is complete. These loans require an as-completed appraisal and a lengthy process where homeowners draw loan money in installments based on construction inspections by a third party.