Which of the following is NOT a characteristic of a construction loan?

A construction loan typically has some unique characteristics that differentiate it from traditional mortgage loans. One of the defining features of construction loans is that they usually involve interest-only payments during the construction phase. This structure is designed to ease the financial burden on the borrower, as they are only responsible for paying interest on the funds drawn down for construction rather than paying down the principal.

Another key aspect is the concept of draw payments, which refers to the disbursement of funds to the borrower at various stages of the construction project, rather than providing the entire loan amount upfront. This mechanism helps ensure that funds are used effectively and are only advanced as needed for the construction process.

The notion of rising principal is also relevant to construction loans, as these loans are typically structured to increase the outstanding principal as the borrower draws down funds throughout the construction phase.

In contrast, fixed monthly payments are not characteristic of a construction loan. Such loans do not typically involve regular fixed payments during the construction phase, as borrowers usually do not start paying off the principal until after the construction is completed and the loan may convert into a conventional mortgage. This highlights the distinctive features of construction loans compared to standard mortgage agreements.