Construction Loan

A construction loan finances development projects with fund disbursement tied to verified construction milestones, featuring higher interest rates, shorter terms, and conversion to permanent financing upon completion.

Loan StructureTerms
Term length12-36 months
Interest rate1-2% above permanent financing
LTC ratio60-70% typical
DisbursementMilestone-based releases
ConversionTo permanent mortgage at completion
Milestone Payment ScheduleExample AED 10M Project
Foundation complete20% release (AED 2M)
Structure to 50%25% release (AED 2.5M)
Structure complete25% release (AED 2.5M)
Finishing to 75%15% release (AED 1.5M)
Practical completion15% release (AED 1.5M)


Risk ConsiderationsFactor
Construction delaysCost overruns
Interest during constructionReduces developer equity
Market changesValue at completion uncertain
Permanent financingMust qualify for conversion

Related Terms

Loan-to-Cost (LTC)Project CostDeveloper FinancingMaturity Date

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