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12 Apr 2022

How Do Interest Only Construction Loans Work?

Construction Loans

When owner-builders and investors apply for construction loans, they should know that the product has a specific purpose. In addition, it has specific loan terms. It takes six to 12 months to build a house. Therefore, the loan lasts as long as the project takes to complete. During the project, borrowers submit documentation to request payment drawdowns. 

In a sense, interest-only construction loans are the most common loan types for these projects. Mortgage House offers a few construction loans including: 

  • Advantage 1 Year Fixed Investment
  • Advantage 2 Years Fixed Investment
  • Advantage 3 Years Fixed

As the project moves through its stages, the borrower can repay the interest on the outstanding amount only. Thus, the repayments for construction loans work like interest-only loans. When the project is complete, lenders will collect the entire loan amount. Owner-builders can roll the loan into a mortgage and standard home loan rates.

Borrowers can repay principal and interest during the construction project. However, it is not a mandate. Instead, lenders prefer that borrowers bring at least a 20% deposit to the table. Moreover, lenders usually finance between 50% to 70% of the project. 

Mortgage House loan specialists can go into further detail. They have access to proprietary tools that help them evaluate applications promptly. Plus, our team will establish a timeline for milestone payments. 

Interest Only Construction Loans Conclusion

Interest-only construction loans remain the norm for financing these projects. To obtain more information about the loans offered by Mortgage House, contact our loan specialists today.

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