A "construction loan" is a short term loan that is used to finance the construction of homes or commercial buildings. During the term of the loan, the lender makes advances to the builder (referred to as "draws") as the construction progresses pursuant to an agreed upon schedule. The builder makes interest payments on only the funds that have been disbursed to the builder. Typically, the construction loan is refinanced into a permanent mortgage (sometimes referred to as "takeout financing") after the property is completed.