You are building a home, the construction timeline is a moving target, and you want the rate locked yesterday. With a construction-to-permanent loan, the lock does not work the way it does on a resale, Patriot Nation, and here is exactly how the two phases play out.

What a construction-to-permanent loan is

The term: CTP. One loan that covers the build and then converts into your permanent mortgage when construction finishes.

The meaning: during construction you pay interest only on what has been drawn, and after completion the loan converts to a normal amortizing mortgage.

The real-world consequence: because there is no set closing date during the build, the rate behaves differently in each phase, and knowing which phase you are in tells you what you can lock.

Construction phase: no lock

The term: the float. During the construction phase of a CTP loan, your rate is not locked.

The meaning: construction timelines are unpredictable and delays are common. Lenders typically do not offer rate locks for the construction phase because the closing date is uncertain, so your rate floats with the market, and you make interest-only payments on the amount drawn during construction, typically at a variable rate tied to an index like the prime rate.

The real-world consequence: the rate you see at the start of the build is not promised. It moves with the market until the permanent phase begins.

Permanent phase: lock at completion

The term: the conversion lock. When construction is complete, the loan converts to a permanent mortgage, and at that point you can lock your rate.

The meaning: some lenders allow you to lock up to 60 days before the expected completion date, while others require the conversion to be imminent.

The real-world play: some CTP loans offer a rate lock commitment at the start of construction, with the lock taking effect when the permanent phase begins. This protects you if rates rise during the build. Ask your lender about this option before starting.

Managing rate risk during the build

The term: the exposure. Because construction can take 6 to 12 months or longer, rate risk is significant.

The meaning: to manage this, some borrowers choose a CTP loan with a longer lock commitment for the permanent phase, while others plan to refinance after conversion if rates have dropped.

The real-world play: CTP loans do not lock rates during construction; the rate is locked when construction completes and the permanent phase begins. Ask about extended lock commitments to protect against rising rates. Make it a great one.