DEFINITION of 'Construction Mortgage'

A loan borrowed to finance the construction of a home and typically only interest is paid during the construction period. Once the construction is over, the loan amount becomes due and it becomes a normal mortgage. The money is advanced incrementally during construction, as construction progresses.

BREAKING DOWN 'Construction Mortgage'

Financing to build a new home typically comes in the form of a construction-to-permanent loan. This financing option has two parts: a loan to cover the costs of construction, and a mortgage on the finished home. The advantage of such plans is that you have to apply only once and you will have only one loan closing.

RELATED TERMS
  1. Construction Loan

    A short-term loan used to finance the building of a home or another ...
  2. Combination Loan

    1. A transaction consisting of two separate loans for the same ...
  3. Construction Interest Expense

    Any interest that is paid during the construction phase of a ...
  4. Future Advance

    A clause in a mortgage which enables the lender to advance funds ...
  5. End Loan

    A permanent, long-term loan used to pay off a short-term construction ...
  6. Construction Spending

    An economic indicator that measures the amount of spending towards ...
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RELATED FAQS
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