Because construction loans are used during the earliest stages of the project, when there are few assets to use as collateral, these loans are typically considered riskier than other forms of project financing and therefore carry higher interest rates. Construction loans are also usually short-term in duration. Following the completion of construction, a construction loan is typically replaced or "taken out" by other financing (i.e., a first mortgage).

To determine the cost of construction interest (under Interim Financing Costs), supply the following information about your construction loan:

• Construction Loan Amount. Enter your best estimate of the amount needed for the construction loan. Most of the cost inputs already entered will probably be part of the construction loan amount, with the exception of permanent financing fees and expenses and initial project reserves. The approximate sum of development costs entered thus far (excluding permanent financing fees and expenses and initial project reserves) will serve as a good estimate of your total development cost and, therefore, the amount of the construction loan.
  
  
• Interest Rate. Interest rate for construction loans tends to be higher than permanent loans because of the higher degree of risk assumed by the lender.
  
  
• Months of Construction. Construction loans are short-term, intended to span the period from the beginning of construction until private financing is secured.
  
  
• Average Outstanding Balance. Construction loan funds are not disbursed in a single lump-sum, but rather disbursed according to a pre-determined schedule and commensurate with actual progress through (and costs incurred during) construction. Interest is only charged on the outstanding balance. A typical average outstanding balance would be around 60 percent.