Chat with us, powered by LiveChat


Mortgage Maestro makes mortgages easy. Continue reading to learn more about mortgages, the latest industry updates and meeting your financial goals.

Construction mortgage in Canada

If you are looking to renovate a newly acquired home to match your preferred style or build your dream house starting from its foundation, you will find it to be a costly process that is also difficult to finance. However, a construction mortgage can be an effective way to make your construction project more affordable.

construction mortgage

What Is A Construction Mortgage?

A construction mortgage helps finance building a new home or renovate an existing home. With a construction mortgage, you can draw the loan amount at various stages of home construction. This is called a ‘progress advance’. The mortgage will be paid or ‘advanced’ based on the construction level. The first advance is available to you when you purchase a lot for building the house.

Advance Stages

There are five different draws for a construction mortgage. Each stage requires you to complete a certain percentage of the project before proceeding to the next draw stage. There is also a portion of the mortgage amount that is given as advance.

Let’s take a look at the different stages of a construction mortgage:

  • 1st Draw: If 15 percent of your construction is complete including, the excavation and laying down of the foundation, 15 percent of your total mortgage will be released at this stage.
  • 2nd Draw: Advancing to the 2nd stage may be a challenge as it requires 40 percent of the construction to be completed. The building should be weather protected and, the roof should be attached. At this stage, 25 percent of the total mortgage amount will be released.
  • 3rd Draw: Upon completion of 65 percent of the home, the third draw of another 25 percent of the total mortgage amount will be made available to you. At this stage, you should have the plumbing and wiring installation in progress, drywall completed, furnace installed, exterior wall cladding taken care of, and some other things.
  • 4th Draw: The penultimate mortgage draw will be 20 percent of the advanced amount. At this point, a total of 85 percent of the mortgage amount has been drawn by you. This stage requires 85 percent of the home to be complete. You should ensure that the kitchen cupboards are installed, the doors are in place, and the bathroom is ready.
  • 5th Draw: This is the final stage where you will draw the last 15 percent of the mortgage amount. It occurs when the house is ready to be occupied with some additional work underway.

A building inspector checks the construction in progress to confirm that the builders are following New Home Warranty (or NHW) policies. The project needs to meet all requirements before the finances for the next stage are released. The borrower pays the cost of the inspection. However, some banks will make deductions to the mortgage draw to accommodate inspection and appraisal fees. Once you have signed the mortgage contract, you won’t be able to change the amount should the need for any upgrades or changes arise.

Finding The Right Mortgage

Few lenders offer mortgages for building homes. You should find a construction mortgage with a low-interest rate to help you make monthly payments with ease. Even a minor percentage difference in your rate can save you thousands of dollars over the long term.

Frequently Asked Questions

If you are looking for more information regarding construction mortgages, here are some frequently asked questions:

How much is the down payment for a construction mortgage?

A down payment of at least 5% – 10% of the total value of your project will be required if you are building a new home. If you need a construction mortgage to renovate an existing house, you may not need to make a down payment because the homeowners will have a minimum of 10% equity in the project.

Is it better to use a bank or a mortgage broker?

If you want access to low-interest rates, Mortgage Maestro can help you. We work with more than 50 lenders including, the big banks.

Mortgage Maestro can help you find the lowest interest rates for your construction mortgage.