Although construction loan calculations are only an approximation of the real expenses that the borrower will have to face, they are a very handy tool when it comes to getting an exact idea about the expected construction cost.
Simple construction loan calculators receive a few fields as input and then output the expected monthly payment that the borrower will have to pay to the lender. The input fields are described below.
The construction loan amount is your best estimation of the amount that you believe you will need in order to complete the construction plan. This is an approximate sum of all the costs that you will have to pay during the period of the construction. It serves as a good estimation for the overall development cost. The overall development cost is usually the amount of money that the borrower applies for.
The interest rate is the rate that you agree to pay to your lender. Interest rates differ among various financial institutions. Additionally, compared to other types of loans, construction loans tend to have higher (worse) interest rates. This is because of the nature of the investment; the lender assumes a high-failure risk and thus, the interest rate increases.
The months of construction field is to be filled with the expected number of months that will pass during the construction phase. Please note that theory is something completely different from practice. Theory assumes no (or minimal) obstacles during the construction phase; however, in practice, the procedure of construction is delayed many times due to unexpected problems.
Some calculators support an Average Outstanding Balance field. This field depends on the financial institution and is typically around 60%.
Finally, the construction interest calculator will give you the expected monthly payment; this is what the borrower is due to pay the lender every month.