Construction Mortgages

A loan borrowed to finance the construction of a home in which typically only interest is paid during the construction period. Once the construction is over, the loan amount becomes due and it becomes a normal mortgage. The loans usually fall under Completion Mortgage or Progress Draw Mortgage.

There are many types of construction financing out, but they usually fall under 3 categories:

• Hiring a contractor to build your house
• Building a house yourself
• Buying a newly constructed house

Completion Mortgage 

This is simply a regular mortgage that means you have purchased/built your home through a Residential Home Builder and only require funds when the house is 100% complete (sometimes a small deposit is required to start).

Progress Draw Mortgage 

A Progress Draw is a type of funding, which is advanced in intervals as the house is being built. There are usually 3 draws at; 35%, 65% and 100% completion. It is important to note that a Progress Draw Mortgage require a Solicitor.

Relevant Terms Regarding Construction Mortgages 

Progress Inspection Report: Each draw requires a Progress Inspection Report, which details the percentage complete prior to the advancement of funds. After the inspection report is ordered, it will be forwarded to the lender, who will manage the draws.
If the mortgage is insured, the same process applies, but the lender will forward the inspection report on to CMHC, or Genworth Financial Canada (Genworth) will perform its own inspection.

Interest on Draws/Advances: Interest is charged on all amounts advanced and are invoiced, then debited monthly from the customer’s account. Debiting takes place on the first of each month and a statement is forwarded to client within first 2 weeks of the month.

Final Advance: The final advance will not be released until the final inspection confirms completion, the final mortgage documents have been signed by the customer, and are returned to the lender by the Solicitor.

Completion Stages 

With Progress Draws, there are typically 3 stages to building a house:

• Roof Stage / Roof Tight – Approximately 35% complete. A survey is required by first draw.
• Intermediate / Lock Up – Approximately 65% complete (prior to the drywall being installed).
• Final Occupancy / Completion – Most lenders will not issue final advance unless the home is 100% complete.

The construction mortgage application from beginning to the end can be a challenging process. We are very well connected to lenders which can help you and your construction project.

Blanket Mortgage 

A type of loan used to fund the purchase of more than one piece of real property. Blanket loans are popular with builders and developers who buy large tracts of land, then subdivide them to be sold gradually one at a time. Rather than securing a new mortgage each time a portion of the development is sold, the borrower uses the blanket loan to buy them all.