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Paying a slightly higher rate on the construction phase of the loan is usually not significant, since the loan is short-term. For example, paying an extra 0.5 percent on a $200,000 construction loan over six months, would only add no more than $250 to your borrowing costs.
Interest rates are higher on short-term building loans than on traditional, permanent mortgages and they are administered in unique ways. Once approved, for example, a borrower is allowed to draw money to fund each phase of a building project. As progress reaches pre-established benchmarks, funds are tapped for subsequent stages of each build.
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A Conventional Construction-to-Permanent mortgage loan is used to finance the construction of the borrower’s home and permanent mortgage into one transaction with a.
If you’re worried about interest rate changes while your home is being built, ask your home mortgage consultant how our Builder Best extended rate lock program can help protect you while your new home takes shape. Lock down a range of interest rates for up to 24 months on a variety of loans with a required, non-refundable extended lock fee.
This type of financing is referred to as a construction-to-permanent loan, or a C/P loan. Most of these home construction loans have a limited construction term, often no more than a year. During construction, the lender will disburse money to the builder as work progresses, and you typically make interest-only payments calculated on the amount.
If fixed interest rates fall during the construction phase, you may have the option to adjust your rate one time before the loan converts to a permanent mortgage.
With a BB&T construction-to-permanent loan, your construction financing simply converts to a permanent mortgage when your home is complete. During construction, you only pay the interest on your loan, and your payments may be tax-deductible. Disclosure 1 1 The information provided should not be considered as tax or legal advice. Please consult with your tax advisor and/or attorney regarding your individual circumstances.