FINANCING GUIDE
How to Calculate Interest During Construction
Interest during construction follows the debt balance created by phased loan draws.
In this guideWhat the analysis measuresCalculation frameworkUnderwriting reviewHow to use the result
What the analysis measures
Calculate interest on opening debt plus the timing-weighted current draw. Beginning-, middle- and end-of-month conventions produce different results.
Calculation framework
Identify whether interest is paid by equity, capitalized into debt or funded from a reserve. Capitalized interest can create circular loan sizing.
Underwriting review
Include fees, base-rate curves, margins, floors and extension periods when material. Do not apply the annual rate to total cost from day one.
How to use the result
Reconcile cumulative draws, interest, repayments and closing debt each month. Stress delays because they increase both interest and equity needs.