CALCULATION GUIDE
How Construction-Loan Interest Reserves Work
Estimate interest while project costs are drawn and before income stabilizes.
Calculation approach
Construction interest depends on the outstanding balance over time rather than only the maximum commitment. A simplified estimate uses average utilization during construction and a higher utilization during lease-up.
How to use the result
A detailed lender model should use monthly draws, interest capitalization rules, fees and required borrower equity timing.