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Construction-Only loan has a similar structure as an interest-only loan with a balloon payment at maturity. It implies that the borrower will have to pay interest-only payments while the construction is in progress and will pay the remaining principal in one payment at the end of the construction. This is a risky loan because it makes the borrower responsible for a large one-time payment. It is possible to get a mortgage on the house to pay off the construction loan. In this case, the borrower will have to pay closing costs twice, one for the construction loan and another for the mortgage. They are paid twice because you will have to get two separate financial products: a construction loan and a mortgage.
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