What type of loan specifies that disbursements be made as specified stages of construction are completed?

A construction mortgage is a type of loan specifically designed for funding the construction of a home or building. The key characteristic of this loan is that it provides disbursements in stages, or "draws," as the construction progresses. This means that the lender will release funds at various points throughout the construction process, contingent upon the completion of specific phases of the project, such as foundation work, framing, or finishing.

This method of financing ensures that funds are used efficiently and only as needed, directly relating to the stages of construction that have been completed. It helps mitigate the risks for both the lender and the borrower, as funds are tied to tangible progress in the building project.

In contrast, other types of loans such as a fixed-rate mortgage, home equity loan, or adjustable-rate mortgage do not operate on this phased disbursement framework. A fixed-rate mortgage provides consistent monthly payments over the life of the loan without regard to construction milestones. A home equity loan is typically based on the equity in an existing property rather than the completion stages of construction. An adjustable-rate mortgage usually involves changing interest rates over time, not the progressive release of funds based on construction stages.