The rate on construction funds is much less on a construction to perm loan saving thousands of dollars.

Take a $500,000.00 loan amount to build a house.  If you pay interest at prime +1% (currently 6%) your interest cost during construction would normally be figured as follows:

Loan amount    $500,000.00     (The total amount needed to borrow to do the project)

rate                 6%            (the rate charged on typical interim bank loan)

const. term      12 months        (the legnth of time required to complete construction)

factor                .7                 (a factor used because funds are not disbursed all at once)

EQUALS            $21,000.00     (total "debt service" for the project)-

Compare to a construction-to-perm loan with a construction rate of 4.0%

Loan amount    $500,000.00     (The total amount needed to borrow to do the project)

rate                 4.0%           (the rate charged on the funds as you borrow them)

const. term      12 months        (the legnth of time required to complete construction)

factor                .7                  (a factor used because funds are not disbursed all at once)

EQUALS            $14,000.00      (total "debt service" for the project)

That's $7,000.00 in savings!