Can I pay my loan down during construction?

You can, but it is not recommended. Remember, the construction loan is a regular mortgage. When you pay down a regular mortgage, you can’t draw funds back out without refinancing the loan. The construction loan works the same way. If you have, say, a $300,000 construction budget and decide to pay it down during the construction phase $50,000, you will only have $250,000 available for the project. So if you pay the loan down, you lose the availability of those funds.

It is recommended to wait until the end of the project before you may any principal pay downs. Since you only pay interest on what you use, if you paid the loan down at the end of the project, you will avoid paying interest on the full loan amount.

Additionally, any pay downs will benefit what the principal and interest payment will be once the project is complete. While the payments are interest only based on what you owe during construction, the principal and interest payment is based on the final loan balance at the end of the project. So if you may a pay down at the end of the project, the P&I payment will be lower due to the lower loan balance.

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