Construction Loan Interest Reserve Calculator
Estimate capitalized interest during the construction period
Construction loans accrue interest only on drawn balances, so the reserve depends on timing. Model straight-line, front-loaded, or back-loaded draws to estimate the interest reserve a lender may require at closing.
- ✓Models monthly construction draws and interest-only accrual
- ✓Supports front-loaded, straight-line, and back-loaded draw curves
- ✓Adds retainage or holdback and reserve contingency assumptions
- ✓Shows monthly balance, interest, and cumulative reserve need
| Month | Draw | Balance | Interest | Cumulative |
|---|---|---|---|---|
| 1 | $200,000 | $200,000 | $1,333 | $1,333 |
| 2 | $163,636 | $363,636 | $2,424 | $3,758 |
| 3 | $163,636 | $527,273 | $3,515 | $7,273 |
| 4 | $163,636 | $690,909 | $4,606 | $11,879 |
| 5 | $163,636 | $854,545 | $5,697 | $17,576 |
| 6 | $163,636 | $1,018,182 | $6,788 | $24,364 |
| 7 | $163,636 | $1,181,818 | $7,879 | $32,242 |
| 8 | $163,636 | $1,345,455 | $8,970 | $41,212 |
| 9 | $163,636 | $1,509,091 | $10,061 | $51,273 |
| 10 | $163,636 | $1,672,727 | $11,152 | $62,424 |
| 11 | $163,636 | $1,836,364 | $12,242 | $74,667 |
| 12 | $163,636 | $2,000,000 | $13,333 | $88,000 |
Frequently Asked Questions
What is an interest reserve on a construction loan?
An interest reserve is money set aside to pay interest during construction. It is usually based on the projected draw schedule, rate, and construction term.
Why does the draw schedule matter?
Interest accrues only on money that has been drawn. A front-loaded draw schedule creates a higher average outstanding balance and a larger reserve than a back-loaded schedule.
Do lenders add a contingency to the interest reserve?
Often yes. A contingency protects against higher rates, slower completion, or draws occurring earlier than expected.
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This tool is for educational purposes only. Results do not constitute a loan offer, pre-qualification, or guarantee of financing. Consult a licensed financial professional for advice specific to your situation.