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This type of financing is referred to as a construction-to-permanent loan, or a C/P loan. Most of these home construction loans have a limited construction term, often no more than a year. During construction, the lender will disburse money to the builder as work progresses, and you typically make interest-only payments calculated on the amount of the loan that has been disbursed.
Once the construction loan converts to the permanent loan, the payment would be $1137.92, to include principle and interest. (APR – 4.668%). Rate is valid as.
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Since there is more risk with a construction loan than a standard mortgage, interest rates may be higher. Also, the approval process is different.
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Construction-to-Permanent Loans. While your home is under construction, we’ll monitor the progress of construction and provide the funds to your builder as your home is completed. Construction and permanent financing handled within one loan closing; Interest-only payments throughout the construction phase; rate options available during construction
The borrower cannot lock the mortgage rate ahead of time. If the interest rate goes up during the construction period, the borrower may pay a higher-than-expected interest rate for the permanent loan after completion of the home construction. Construction Loan Limitations
A construction-to-perm loan allows you to get the same low rate during your construction phase but at interest only. Your one-time closing costs will translate into big savings. This option can also be used for a renovation of your existing home.