Advantages and Disadvantages of Dutch Interest for Construction Loans
Some lenders use a method of interest accrual known as “Dutch interest” for a private money construction loan which calculates payments based upon the entire loan amount rather than payments on partial advancements in a construction loan.
Lenders love it because they're getting interest on the full amount.
Borrowers, however, may not like it because you're paying interest from day 1 on the full loan amount whereas with a construction loan you pay interest as the proceeds are disbursed in increments.
HOWEVER, if your construction project is built relatively quick, you may save money on a “Dutch interest” loan even though you're paying on the full loan amount.
Here's why: Often, with a Dutch interest loan you get a LOWER rate and sometimes lower points than you would with a construction loan, so your overall costs may be lower.
Watch this video to get the full view.
What is Dutch Interest?