Construction loans are a unique mortgage product that can be used by homeowners to finance the building of a custom home that many conventional products do not cover. Most construction loans require interest only payments during the building period and are due in full a short time after the builder secures a certificate of occupany for the homeowner.
Generally, construction rates are quoted on a prime plus basis. This means that you will agree to pay the prime interest rate plus a certain spread and your payments will fluctuate on a month to month basis.
A recent trend that has emerged is the use of permanent-to-construction loan programs to ensure financing after a home is complete. This may be a smart option to consider as it releaves the burden of hustling to refinance after your home is complete and might allow you to lock in a better rate than the what is available in the future.