What is a Construction Loan?
A Construction Loan is short‑term financing used to build a new house or property. Lenders view it as higher risk because the project is not yet complete.
- Tenure: typically 6 to 24 months
- Interest rate: higher (short‑term, higher risk)
- Repayment: often interest‑only during construction; principal is paid at completion or rolled into a mortgage
Best for: custom home projects, owner‑builders, and contractors who need staged funding.
What is a Mortgage Loan?
A Mortgage Loan is long‑term financing for purchasing an already built property. It provides predictable payments over many years.
- Tenure: commonly 10 to 30 years
- Interest rate: lower; fixed or variable
- Repayment: monthly installments (principal + interest)
Best for: buyers of move‑in‑ready homes seeking long‑term affordability.
Construction Loan vs Mortgage Loan: Key Differences
Back to top| Feature | Construction Loan | Mortgage Loan |
|---|---|---|
| Purpose | Finance a new build | Buy a ready property |
| Loan Tenure | 6–24 months | 10–30 years |
| Interest Rate | Higher | Lower |
| Risk | Higher (project completion risk) | Lower |
| Repayment | Interest‑only during build | Monthly EMIs (Principal + Interest) |
| Conversion | Can convert to mortgage | Not needed |
Pros & Cons
Construction Loan
Pros
- Flexible design & customization
- Funds released in stages as construction progresses
- Can convert into a mortgage
Cons
- Higher interest rates
- More inspections & paperwork
- Shorter repayment period
Mortgage Loan
Pros
- Lower interest rates
- Long tenure → affordable EMIs
- Typically easier approval
Cons
- Only for ready homes
- Limited customization
Which loan is better for you?
If you plan to build a new home, a construction loan is purpose‑built for staged funding and design flexibility. If you want to buy a move‑in‑ready home, a mortgage offers lower rates and predictable monthly payments over a longer term.
For long‑term affordability, a mortgage is generally more practical, while a construction loan is ideal if customization is your priority.