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Payment During Construction
Construction payments are interest only based on the total amount of funds disbursed to date for lot payoff and construction draws. The required payment will increase with each stage of construction as draws are disbursed to your builder.
Construction Interest and the IRS
One of the rules requires that the loan be secured by your primary residence. Since it would be highly difficult to occupy a home under construction, the guidelines allow for some leniency. You may be able to consider a home under construction as your primary or second home, for up to 24 months. This treatment applies if the home becomes your primary or second residence when it is ready for occupancy. Consult your accountant for more specific and concrete information and for updated current information on this topic (as IRS allowances for interest deductions often change.)
What about my current Home - Will I have to make two mortgage payments?
In most cases, National City allows for those estimated payments due during construction to be financed via an Interest Reserve Account, so you may not have to worry about making a payment on the construction loan until the estimated interest reserve is used up.
Interest Reserve's
NCM can allow for those periodic payments during construction to be financed and included in the loan at initial closing. Those funds will be set aside and designated only for interest payment. This alleviates you from having to make concurrent payments on an existing home and the new home you're building.
You will receive a statement each month whether or not you have an interest reserve.
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