课程: Structuring a Construction Loan

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Structuring interest payments in construction loans

Structuring interest payments in construction loans

课程: Structuring a Construction Loan

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Structuring interest payments in construction loans

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- [Instructor] Interest during construction is not typically paid in cash, as we demonstrated during our calculations. Since a construction project will generally not produce positive cash flows during the majority of the construction period, the construction period interest, that is the interest that is due on the construction loan during construction, will accrue. This accrued amount is then included in the amount borrowed, as we have showed in the previous section, and paid off after the construction period. Really, what this means is that you, the lender, are funding the borrower's interest payments during the construction period. Another component of interest that is usually dictated by the lender is the interest reserve. This is an additional tool the lender may use to mitigate risk. An interest reserve is capital that the lender will hold in a collateral account. The size of the reserve will be determined by the potential interest payments that the lender determines are at…

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