What type of loan is characterized by interest-only payments and draw payments to the builder?

A construction loan is specifically designed to finance the building of a home or other real estate project. It is characterized by a structure that allows the borrower to make interest-only payments during the construction phase. Throughout this period, payments are typically made only on the interest accrued on the drawn funds rather than on the principal. This helps reduce initial cash flow burdens while the property is being constructed.

Additionally, draw payments to the builder are a crucial component of a construction loan. As construction progresses, the lender disburses funds to the builder in increments (or draws) based on completed phases of work. This staged approach ensures that the funds are used effectively to pay for construction expenses as they arise.

Other loan types do not have the same structure tailored specifically for construction projects. For instance, equity loans generally involve borrowing against the homeowner's equity in an existing property, while mortgage loans are more focused on the acquisition of fully constructed real estate. A bridge loan, on the other hand, typically helps borrowers cover the gap between buying a new property and selling an old one, rather than financing the construction of a new building.