Loans for constructions of homes

How does a construction mortgage work?

A construction mortgage in Canada is a specialized type of loan used to finance the construction of a new property or major renovations to an existing one.

There are two types of construction mortgages in Canada:

1. Progress draw construction mortgage - funds are disbursed in stages or draws based on construction milestones. Commonly used for larger projects.
2. Single-draw construction mortgage - a lump sum is provided at the start of the project. Less common but used for smaller projects or renovations.

The application process usually includes a pre-approval when lenders will assess your creditworthiness, income, and overall financial health. You must provide detailed plans for the construction, including architectural drawings, a construction schedule, and a budget.

Review and agree on the terms, including the interest rate, loan amount, repayment schedule, and draw schedule. Sign the mortgage agreement and complete any necessary legal work to register the mortgage against the property.

An initial draw or advance may be provided to cover the initial costs, such as permits and initial construction expenses. Funds are disbursed in stages based on the completion of specific construction milestones. These milestones are typically defined in the loan agreement and may include foundation completion, framing, roofing, etc.

Before each draw, the lender may require an inspection to verify that the construction has progressed according to the agreed schedule and that the work meets quality standards. The final draw is provided upon completion of the construction project, often after a final inspection and confirmation that all work is complete and up to code.

During the construction period, you may only be required to make interest payments on the drawn amounts. This helps manage cash flow while construction is ongoing. But, once construction is complete, the loan typically converts to a standard mortgage with principal and interest payments.

Home loan calculations for 20 years (example)

What are the rates for home builder loans in Canada?

Fixed rates generally range from about 5% to 8% for a fixed-rate construction mortgage, depending on the lender and the borrower’s profile.

Variable rates typically range from about 4.5% to 7%, though these rates can fluctuate with market conditions.

Construction mortgages are often priced as a premium over the prime rate. For example, the rate might be "prime + 1%," meaning if the prime rate is 6%, the construction mortgage rate would be 7%.

You can also see the similar FAQ about: 

• BMO calculators
• BMO cashback mortgage proposals
• BMO pre-approved mortgage
• BMO rates
• CIBC home insurance

Details of companies offering the financial services:

Jeff Di Lorenzo

Head office’s address: 122 Lower Bench Rd, Penticton, BC V2A 1A8

Contact center: 1-877-744-3436

Phone: 778-839-3963

Web-site: https://yourequity.ca/

Lendtoday

Head office’s address: 179 King St E, Oshawa, ON L1H 1C2

Phone: 1-855-242-7732

Web-site: https://www.lendtoday.ca/

Bank Of Montreal

Head office’s address: 119, rue Saint-Jacques Montreal, Quebec H2Y 1L6

Contact center: 877-225-5266

Phone: 416-867-5000

Web-site: http://www.bmo.com/main/personal

Swift code: BOFMCAM2

Stock code: BMO

BSB: 001

Meridian Credit Union

Head office’s address: 3280 Bloor Street West Centre Tower, Suite 2700 Toronto, ON, M8X 2X3

Contact center: 866-592-2226

Phone: 416-597-0165

Web-site: https://www.meridiancu.ca/

Swift code: MRCUCA21

Stock code: MRBK

BSB: 837

RBC Royal Bank

Head office’s address: 200 Bay St, 9th Floor South Tower, Toronto

Contact center: 800-769-2511

Web-site: http://www.rbc.com/canada.html

Swift code: ROYCCAT2

Stock code: RY

BSB: 003