Understanding Construction Loan Terms: Mini-Perm Explained
Construction loans are crucial for financing building projects, and understanding their structure can help borrowers manage timing and payments effectively. Randy Efron from Skylatus Property Capital explains how construction loans are typically structured with or without a “mini-perm” component.
What Is a Mini-Perm Loan?
A mini-perm (short for “miniature permanent loan”) is a loan structure that gives borrowers extra time to repay after construction finishes. It bridges the gap between the interest-only construction phase and longer-term permanent financing.
With Mini-Perm: Following the construction period, borrowers enter a mini-perm phase where principal and interest payments are due, typically amortized over 20 to 30 years.
Without Mini-Perm: Borrowers must repay or refinance soon after construction or when the property stabilizes.
Construction Period Details
During the construction phase:
Loans usually require interest-only payments with no amortization.
Developers often establish a debt service reserve to cover monthly debt service, ensuring payments are made on time even before the property generates cash flow.
Benefits of Mini-Perm
The mini-perm period provides financial breathing room:
Reduces pressure to refinance immediately once stabilization occurs.
Aligns repayment schedules with property income growth.
Common in specialized loan products like HUD loans for multifamily properties.
For help navigating construction financing or raising capital for your real estate projects, contact Randy Efron at randy.efron@skylatus.com or visit Skylatus Property Capital.
