Construction Finance Cost Calculator
Estimate the finance cost of a development loan drawn down over a build period, including arrangement and exit fees, on an average balance basis.
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A development loan is not drawn in full on day one. It is released in stages against progress, so interest accrues on a balance that climbs from nothing to the full facility across the build. Costing it as though the whole sum were outstanding for the whole period overstates the interest substantially.
The usual approximation is an average balance of about half the facility, which is close enough for an appraisal when drawdowns are broadly even. Fees are the part most often left out, and on short facilities they can exceed the interest.
The calculation
Interest is charged on the balance actually drawn. With broadly even drawdowns the average balance is half the facility, so interest ≈ (facility ÷ 2) × rate × months ÷ 12. Arrangement and exit fees are charged on the full facility regardless of what is drawn.
Worked example
A 500,000 facility at 9% over an 18-month build has an average balance near 250,000, so interest is 250,000 × 9% × 1.5 = 33,750. A 1.5% arrangement fee adds 7,500, giving a total finance cost of 41,250 — about 8.25% of the facility across the build.
Overruns cost more than the extra months
Interest continues on the full balance once the build is complete but unsold, and by then the average balance is the whole facility rather than half. A three-month overrun on this loan costs roughly 11,250, not the 5,600 the average-balance figure suggests.
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Create your free property pageFrequently asked questions
Why use half the facility?
Because a construction loan is drawn in stages against progress, so the outstanding balance rises through the build. Half is a reasonable approximation for even drawdowns; a front-loaded programme costs more and a back-loaded one less.
Is interest paid monthly or rolled up?
On development finance it is usually rolled up and settled on redemption, because the project has no income during construction. Rolled-up interest compounds, so the true cost is slightly above this straight-line estimate.
What happens if the build overruns?
Interest keeps accruing on a balance that is now fully drawn, and extension fees often apply. This is the largest single risk in development finance, which is why appraisals should always be tested against a delayed programme.
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