Why development loan interest is lower than rate times facility
Development finance is drawn in stages. The lender usually releases a day-one advance, often towards the site, and then pays out the build costs as each stage is completed and checked by a monitoring surveyor. Interest is charged only on what has been drawn, so in the early months you pay interest on a small balance and the full facility is only outstanding near the end of the build.
The average balance drawn is the key figure. Interest is roughly that average multiplied by the monthly rate and the number of months. The calculator works it out month by month, so it also handles compounding and different draw patterns exactly.
Rolled-up, compound and serviced interest
Most UK development lenders roll interest up: it is added to the debt and repaid from sales or a refinance. If it compounds monthly, each month's interest is charged on the drawn balance plus interest already added, which costs more than simple rolled-up interest. If you service the interest, you pay each month's charge as it falls due and the total is the same as simple interest.
The draw pattern matters too. Front-loaded builds, where groundworks and frame take a large share early, cost more interest than back-loaded ones, where fit-out costs come late.
Worked example: a £1,000,000 facility
A £1,000,000 facility has a £250,000 day-one advance and £750,000 of build funding drawn in 12 equal monthly tranches of £62,500, followed by a three-month sale period. The average balance drawn over the 15 months is £725,000, or 72.5% of the facility.
At 0.9% a month, rolled up and compounded monthly, total interest is £102,985.91. The first month costs £2,812.50 on £312,500 drawn, and the largest month, at the end, costs £9,838.33 as interest compounds on the full balance. If the whole £1,000,000 had been drawn on day one, interest would have been £143,845.83, so drawing in stages saves £40,859.92. With simple rolled-up interest, the total would be £97,875.00.
Fees, profit and lender limits
This page focuses on interest. Arrangement and exit fees, loan to cost, loan to GDV and profit after finance are on the UK development finance calculator, which uses the same drawdown model so the interest figures match.
For fees, lender limits and profit after finance, use the UK development finance calculator .
If the facility also buys the site, use the UK site acquisition finance calculator .
Use the right country page
This page stays in pounds and uses UK terms: development finance, a monthly rate and rolled-up interest. The country choices above the inputs open separate local pages. Choosing United States opens the US construction loan interest calculator, which uses an annual rate and monthly interest payments. The inputs reset and amounts are not converted.
Inputs for the development loan interest calculator
Total facility
The whole loan once fully drawn, including the day-one advance.
Day-one advance
The part of the facility released at the start, often towards the site purchase. Enter zero if none.
Quoted interest rate
The rate in your offer, not the APR. UK development finance is usually quoted per month.
Rate quoted per
Month for a monthly rate. Year (nominal) divides an annual rate by twelve.
Build period
Months over which the rest of the facility is drawn, one tranche at the start of each month.
Sale or refinance period
Months after the build while the full facility is outstanding.
Draw pattern
Even tranches, or front-loaded or back-loaded tranches that taper in straight-line steps.
How interest is paid
Rolled up and repaid at exit, compound or simple, or paid monthly.
CALCULATOR QUESTIONS
UK development loan interest calculator questions
How is interest calculated on a development loan?
Each month, interest is charged on the money drawn so far at the monthly rate. If interest is rolled up and compounded, it is also charged on interest already added.
What is the average balance drawn?
The average amount you owe across the loan's term, before interest. Because the build is drawn in stages, it is usually well below the full facility.
Does a front-loaded build cost more interest?
Yes. Drawing more early means more money is outstanding for longer, so interest is higher than with even or back-loaded draws.
Is serviced interest cheaper than rolled-up interest?
It costs the same as simple rolled-up interest but less than compound rolled-up interest, because interest is not charged on interest. You need cash to pay it monthly.
What happens when I change country?
The United States option opens the separate US construction loan interest page, in dollars, with an annual rate. Your inputs are reset rather than converted.