A construction loan requires the payment of

A construction loan requires the payment of

• A. Interest only
• B. Principal and Interest
• C. PITI
• D. Monthly admin fee

Answer: (A)

During construction, funds are drawn as the project progresses, so lenders commonly require interest to be paid on the drawn amount while the principal is not reduced until construction ends or the loan converts to permanent financing. This keeps monthly payments manageable and preserves cash for ongoing construction costs. The loan balance grows with each draw because only interest is paid each month. Paying principal and interest would reduce the loan balance each month, which is not typical during the build phase. PITI covers taxes and insurance in addition to principal and interest, and those escrow items aren’t usually part of a construction loan’s ongoing payment. A separate monthly admin fee isn’t a standard loan payment component either. So, interest-only payments best reflect how a construction loan is usually structured during the building period.

During construction, funds are drawn as the project progresses, so lenders commonly require interest to be paid on the drawn amount while the principal is not reduced until construction ends or the loan converts to permanent financing. This keeps monthly payments manageable and preserves cash for ongoing construction costs. The loan balance grows with each draw because only interest is paid each month.

Paying principal and interest would reduce the loan balance each month, which is not typical during the build phase. PITI covers taxes and insurance in addition to principal and interest, and those escrow items aren’t usually part of a construction loan’s ongoing payment. A separate monthly admin fee isn’t a standard loan payment component either.

So, interest-only payments best reflect how a construction loan is usually structured during the building period.