Construction Loan Draw Calculator Formula

Understand the math behind the construction loan draw calculator. Each variable explained with a worked example.

Use the Construction Loan Draw Calculator

Formulas Used

Amount Per Draw

per_draw = draw_amount

Estimated Total Interest

total_interest_cost = total_interest

Origination Fee

origination = origination_fee

Total Inspection Fees

inspection_total = total_inspection

Total Financing Cost

total_financing_cost = total_loan_cost

Average Outstanding Balance

avg_outstanding = avg_balance

Variables

VariableDescriptionDefault
total_loanTotal Loan Amount(USD)350000
num_drawsNumber of Draws5
annual_rateAnnual Interest Rate(%)9
construction_monthsConstruction Period (months)8
origination_pctLoan Origination Fee(%)2
inspection_fee_per_drawInspection Fee Per Draw(USD)250
draw_amountDerived value= num_draws > 0 ? total_loan / num_draws : 0calculated
months_per_drawDerived value= num_draws > 0 ? construction_months / num_draws : 0calculated
monthly_rateDerived value= annual_rate / 100 / 12calculated
avg_balanceDerived value= total_loan * (num_draws + 1) / (2 * num_draws)calculated
total_interestDerived value= avg_balance * monthly_rate * construction_monthscalculated
origination_feeDerived value= total_loan * origination_pct / 100calculated
total_inspectionDerived value= inspection_fee_per_draw * num_drawscalculated
total_loan_costDerived value= total_interest + origination_fee + total_inspectioncalculated

How It Works

Construction Loan Draw Schedules

Construction loans disburse funds in stages (draws) as building milestones are completed. Interest is charged only on the amount drawn, making the draw schedule critical for managing costs.

How Draws Work

1. The lender approves a total loan amount based on the construction budget 2. As each construction phase is completed, the builder requests a draw 3. The lender sends an inspector to verify the work is done 4. The lender disburses the next draw amount 5. Interest accrues on the cumulative balance outstanding

Typical Draw Milestones

  • Draw 1: Foundation complete (15-20%)
  • Draw 2: Framing and roof (25-30%)
  • Draw 3: Mechanical rough-in (15-20%)
  • Draw 4: Drywall and finishes (20-25%)
  • Draw 5: Completion and final (10-15%)

    • Interest Calculation

    Because the balance increases with each draw, the average outstanding balance is approximately half the total loan amount. Total interest = Average Balance x Monthly Rate x Months.

    Worked Example

    $350,000 construction loan, 5 draws, 9% annual rate, 8-month construction, 2% origination, $250 inspection per draw.

    total_loan = 350000num_draws = 5annual_rate = 9construction_months = 8origination_pct = 2inspection_fee_per_draw = 250
    1. 01Amount per draw: $350,000 / 5 = $70,000
    2. 02Average outstanding balance: $350,000 x (5 + 1) / (2 x 5) = $210,000
    3. 03Monthly rate: 9% / 12 = 0.75%
    4. 04Total interest: $210,000 x 0.75% x 8 = $12,600
    5. 05Origination fee: $350,000 x 2% = $7,000
    6. 06Inspection fees: $250 x 5 = $1,250
    7. 07Total financing cost: $12,600 + $7,000 + $1,250 = $20,850

    Ready to run the numbers?

    Open Construction Loan Draw Calculator