Construction Loan Interest Reserve and Draw Calculator
Estimate capitalized interest from the drawn loan balance, calculate loan to cost, and schedule monthly construction draws.
Request a financing review when you are ready to share the property, requested proceeds, and timeline.
How the Construction Interest Reserve Calculator Works
The calculator starts with the initial funded loan balance and adds each scheduled construction draw at the beginning of the month. Monthly interest is calculated on that drawn balance and added to the loan at month end. The sum of the monthly interest amounts is the estimated interest reserve.
Monthly Interest = (Beginning Balance + Monthly Draw) × Annual Rate / 12
Ending Balance = Beginning Balance + Monthly Draw + Monthly Interest
Interest Reserve = Sum of Monthly Capitalized Interest
How Loan to Cost Is Calculated
Loan to cost compares the estimated total loan commitment with the total project cost. In this calculator, the commitment includes the initial funded balance, all scheduled future construction draws, and the capitalized interest reserve.
Total Loan Commitment = Initial Balance + Construction Draws + Interest Reserve
Loan to Cost = Total Loan Commitment / Total Project Cost × 100
Why Draw Timing Changes the Interest Reserve
Construction interest accrues only after funds are advanced. Front loaded draws increase the average outstanding balance and usually require a larger reserve. Delaying draws reduces interest but can create funding risk if the schedule is not realistic. Match the monthly schedule to the construction budget, expected inspections, retainage, and lender funding process.
Construction Reserve Worked Example
For a $5,000,000 project with a $750,000 initial funded balance, $3,000,000 of future draws spread evenly across 12 months, and an 8.5 percent annual rate, the model estimates about $208,070 of capitalized interest. The resulting estimated commitment is about $3,958,070, or 79.16 percent of total project cost.
Choosing Inputs and Reading the Draw Schedule
Use the lender funded opening balance rather than total costs incurred before closing. Enter monthly draws from the construction budget and timeline, including expected inspection and funding delays. The calculated reserve can be understated if the project runs late, rates rise, draws occur earlier, or the lender charges interest and fees differently.
Frequently Asked Questions
Is construction loan interest charged on the full commitment?
It is commonly charged on the outstanding funded balance rather than the entire unfunded commitment. Loan documents may also impose unused fees or other charges that this calculator does not include.
How is a construction loan interest reserve calculated?
Project each draw and outstanding balance by month, calculate interest for each period, and add the monthly interest amounts. This calculator capitalizes each month's interest into the following month's opening balance.
Why do earlier construction draws increase the reserve?
Funds advanced earlier remain outstanding for more months. That increases the average drawn balance and the amount of interest accruing during construction.