Accrued Interest

Accrued interest is the interest that accumulates on a construction loan over a period of time. Construction loans are typically short-term loans that are used to finance the construction of a building or other type of real estate development. Because construction loans are short-term loans, the interest on these loans accumulates over a relatively short period of time.

The amount of accrued interest on a construction loan will depend on the terms of the loan, the interest rate, and the amount of time that has passed since the loan was disbursed. Typically, the borrower will be required to make periodic interest payments on the loan during the construction process, and the amount of interest that has accrued up to that point will be added to the principal balance of the loan.

For example, if a construction loan has an interest rate of 5% and a principal balance of $500,000, the interest that would accrue on the loan over a period of one year would be $25,000. If the borrower makes interest payments on the loan every six months, the accrued interest would be added to the principal balance of the loan each time a payment is made.

Overall, accrued interest is an important concept to understand when it comes to construction loans. It is the interest that accumulates on a construction loan over time, and it can have a significant impact on the total amount of the loan and the interest payments that are required.