Construction Mortgages in Ontario
- Have you been thinking about building your dream home from the ground up?
- Are you the kind of person that likes to be hands on and would enjoy building a custom home?
- Would having a bank mortgage pre-approved for construction purposes take the stress out of your building plans?
- Did you ever walk into someone's new home and say, 'if this were my house I would have done this?'
- Could having someone on your side, that knows Canada's construction mortgages helpful to you?
- In the event that you don't qualify for a bank construction mortgage would you consider a private mortgage lender?
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Construction mortgage loans in Canada are unique and not easily available. We work with a few CMHC insured lenders that will fund mortgages for construction based on a Progress Advance Schedule. Alternatively we work with private investors that have more flexible guidelines and are able to assist clients will all types of construction projects.
To discuss your construction mortgage contact us online here or call 1-877-590-1961.
Below is an example of a Canadian Trust company's construction loan program. Very affordable and easy to work with. All construction mortgage programs are different but this will give you an idea of the terms and criteria involved.
Terms
- 3 to 10 year closed terms available – maximum discounts offered to qualified applicants.
Interest Rate
- The mortgage interest rate during construction will be 1% over the bank POSTED rate for the term chosen (not the discounted rate) or 2% if funding includes land purchase. The take out or permanent mortgage interest rate will be effective when the mortgage is 100% disbursed by the bank upon 100% completion of the home.
OR - If construction period exceeds the typical 120 day rate hold, the mortgage interest rate during construction will be 1% over the bank's one year closed term mortgage rate (2 % if funding includes land purchase), adjusted every 120 days. Final rate to be set any time in the 120 days prior to the interest adjustment date.
Progress Advances
- If your home is being built by a qualified contractor, we can arrange for progress advances based on a cost to complete basis. Note: Homes must be built by a qualified contractor to be eligible for progress advance loans. Self-built projects do not qualify.
- Advances are determined by the percentage of the work to be completed in relation to the construction costs, less the land.
- The hold back of funds is based on the greater of the fixed price contract or the appraisers estimated costs. Clients are required to put all of their down payment/equity into the project prior to the bank advancing mortgage funds. Unless the clients have substantial cash reserves in excess of their down payment amount, we recommend that they arrange a line of credit to facilitate funds being available upon demand.
Click here for a Typical Progress Advance Schedule
Cost to Complete
- The advance of funds is based on the cost to complete – not the cost of the work already completed.
Example:Fixed Price Contract (Construction Cost) $150,000 Land Value $50,000 Total Costs $200,000 Mortgage Approved $160,000 - Advance # 1 – Completion of foundation (prior to backfill)
Construction is 16% complete leaving 84% to be completed
Construction Cost ($150,000) x 84% = $126,000 Holdback
Approved Loan Amount – Holdback ($160,000 - $126,000) = $34,000 Gross/Net Advance minus Builders Lien Holdback - Advance # 2 – Roof on, exterior walls, roughed in plumbing, wiring and insulation (prior to drywall)
Construction is 55% complete leaving 45% to be completed
Construction Cost ($150,000) x 45% = $67,500 Holdback
Approved Loan Amount – Holdback ($160,000 - $67,500) = $92,500.00 Gross Advance
Gross Advance – Previous Advance ($92,500 - $34,000) = $58,500 Net Advance minus Builders Lien Holdback - Advance # 3 - Interior complete
Construction is 80% complete leaving 20% to be completed
Construction Cost ($150,000) x 20% = $30,000 Holdback
Approved Loan Amount – Holdback ($160,000 - $30,000) = $130,000 Gross Advance
Gross Advance – Previous Advances ($130,000 - $92,500) = $37,500 Net Advance minus Builder’s Lien Holdback - Advance # 4 – Building complete
Construction is 100% complete
Construction Cost ($150,000) x 0% = 0% Holdback
Approved Loan Amount – Holdback ($160,000 - $0) = $160,000 Gross Advance
Gross Advance – Previous Advances ($160,000 - $130,000) = $30,000 Net Advance minus Builders Lien Holdback
- Advance # 1 – Completion of foundation (prior to backfill)
Builders Lien Holdbacks
- A holdback will be retained from each advance until the solicitor handling the mortgage provides confirmation that all Mechanics Liens/Construction Lien Act Holdback requirements have been met, in accordance with the schedule below:
Ontario 10% 45 days
Acceptable Down Payments
- Cash
- Gift
- Existing Home Sale Proceeds
- Equity in Land
- Sweat Equity (not to exceed 50% of total down payment requirements)
Required Documentation
- Construction must be completed according to plans and specifications approved by the bank and complying with applicable building codes and regulations. Prior to the mortgage approval, the bank must receive copies of fixed price contracts or labor and material estimates and applicable building permits and plans.
- For high ratio mortgages, the bank will require a copy of the New Home Warranty Certificate and the registration number applicable to the security.
- A copy of the Occupancy Certificate at the time of final advance.
- For mortgages over $250,000 the bank will require a Surveyor’s Certificate or Title Insurance.
- For mortgages over $400,000 the bank will require a copy of the insurance policy which is to include fire and extended construction coverage for an amount not less than the loan amount. If mortgage is below $400,000 the evidence of insurance is to be provided with the solicitor’s preliminary report.
- Other documentation as requested in the mortgage approval commitment letter.
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*Please note that all guidelines are subject to change without notice.*
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