Understanding Construction Loan Terms

[Priestley Leng]

I’m trying to understand the terms of these construction loans to build a duplex and choose the better option ASAP. 

Loan 1: Loan Amount: $525,000 - $75,000 funded at closing (less fees and reserve), then 6 draws of $75k as
duplex is built. Draw schedule to be agreed upon prior to closing.
Term: 1 Year
Fee to Lender: 2.5 points – ($13,125 paid at closing from loan proceeds).
Interest Rate: 11.5% Interest-Only billed monthly on outstanding balance.
Interest Reserve: $15,000 – approximately 6 months interest, paid at closing from loan proceeds.
Once interest reserves are depleted, borrower to make interest-only payments monthly.
Pre-Payment Penalty: Should loan be paid off prior to interest reserve funds being depleted, a pre-
payment penalty will be charged equal to the amount remaining in interest reserves at time of payoff.

Loan 2: 

Loan amount 490,530.60

Lender Points: 3%
broker points: 1%
rate: 11.99%

Term: 12 months (interest only)

Prepayment penalty: None

Processing fee needs to be wired before LOI can be issued