A 30 year fixed rate construction loan will require a person to pay more interest overall, but the monthly payments on the 30 year construction loan will be less than the monthly payments of the 15 year fixed rate construction loan. If a person can afford the more expensive payments, it might be smart for them to get the 15 year construction loan and pay off their house more quickly.

Adjustable Rate Mortgage construction loan

Adjustable Rate Mortgages are just what they say they are; adjustable. There are many different kinds of Adjustable Rate mortgages, there are one year Adjustable Rate Mortgages, as well as 3/1, 5/1, 7/1, and 10/1 Adjustable Rate Mortgages.

Adjustable Rate Mortgages have both positive and negative aspects to them. Usually Adjustable Rate Mortgages have a lower interest rate to begin with than Fixed Rate Mortgages do. But since they are adjustable, the interest rates on Adjustable Rate Mortgages will change and they will go up after a certain number of years. This adjustment can greatly increase the monthly payment on the construction loan.

Interest only construction loans

Interest only construction loans are very different than Fixed Rate construction loans and Adjustable Rate Mortgages. In Fixed Rate construction loans and Adjustable Rate Mortgages a person pays payments each month and these payments are part interest and part payment on the actual house. An interest only loan requires a person to only pay payments each month that include only the interest. The borrower is to pay the interest only payments for a certain amount of time.

Interest only construction loans can make the monthly payment much less than a regular fixed rate or adjustable rate construction loan. Once that time is up the person can pay the remaining balance, refinance the mortgage loan, or start paying on the principal. And another nice thing about interest only construction loans is that the borrower can pay on the principle whenever they would like to.

Short-term construction loan

There is also another option for people looking to get a loan to build their home. They can get a short term one year loan. After the year is up, the person who gets this type of construction loan is then required to refinance the loan to a regular type of mortgage loan. If a person does decide on this type of loan, they need to be aware that they will then have two sets of closing costs and they will have to re-qualify for the next loan when the house is done being built.

Instead of doing a short-term loan, many people opt for the all-in-one loan which will allow them to switch over from their construction loan to a permanent mortgage loan once the house is built. This type of loan only requires one set of fees and closing costs.