Mortgages
Construction mortgages: the money follows the build
The whole difference between a construction mortgage and a regular one fits in a sentence: the money is not advanced at once — it is released in stages (draws) that follow the build, with an inspection before each release. Interest accrues only on what has been advanced, and during construction you generally pay interest only. A self-built home, a teardown-rebuild, a small multi-unit project — they all run on this machinery. This page covers how it works, what lenders scrutinize, and how it ends.
Last updated 2026-09-01
How do draws actually work?
The common rhythm is three to five draws pinned to milestones: foundation complete, framing / lock-up, interior completion, final completion. Before each draw an appraiser verifies progress as a percentage of completion, and the lender releases funds in proportion.
Fix the order in your head: work first, money after. In every stage you front the cash that pushes the build to the milestone, and the draw follows the inspection. So keep genuine working capital in reserve — running it to exactly zero is how builds stall.
Interest accrues on the advanced balance only, generally interest-only during construction: light early, heavier as completion nears. Put the construction-period interest into the budget — it is a real project cost.
What is the 10% holdback, and why can’t you touch it?
In BC, the Builders Lien Act requires a 10% holdback on each progress payment, protecting subcontractors’ and suppliers’ lien rights, released only after the statutory period runs.
This is not your lender squeezing you — it is statute, and it applies to every build. The practical effect: each stage you receive one-tenth less in hand than the progress payment’s face value. Plan cash flow on that basis.
Your lawyer and lender run the mechanics of lien periods and release. Your job is simpler: never budget that 10% as spendable money.
How much can you borrow — against cost, or against finished value?
Lenders compute both: a share of total project cost, and a share of the appraised value on completion — and lend the lower. Common ranges run 65–75%, varying by lender and project.
If you already own the land, its value generally counts as your equity contribution — which is how many self-builders qualify without matching cash.
The budget is the heart of the application: line items detailed enough to survive challenge — excavation, structure, mechanical/electrical, finishing, servicing, permits, interest, contingency. A sloppy budget ends the conversation before it starts.
What lenders underwrite: contract, builder, permits, exit
A fixed-price contract with a licensed builder who has a track record is the easiest file to approve. Self-managed builds (self-build) get done too, but with tighter scrutiny and lower leverage — you have to prove you can hold a budget and a schedule.
Permits and drawings must be in place: building permit, plans, costed budget, construction timeline. Wanting money before the permit is issued is, for most lenders, a non-starter.
Plan the exit before you start: construction money is short-term. On completion it converts to a regular takeout mortgage — and the safe play is pre-approving the takeout before breaking ground. Finishing the build and then discovering you can’t convert is this product’s most painful accident.
What happens when you run over budget?
The default rule is cold: the lender advances to the approved amount, and the overrun is your problem. Mid-project increases mean re-underwriting — not guaranteed, never fast.
So two habits from day one: carry a contingency (commonly around ten percent), and lock prices on the big purchases early. Materials volatility, design changes and surprises underground are the three classic overrun sources.
Changing builders mid-project is a major event that triggers lender review. If it comes to that, talk to the lender before you act — never present it as a done deal.
Building rental units? MLI Select has raised the bar for new rental
For a new rental project of five or more units, CMHC’s MLI Select belongs in the plan: at the top tier, new construction can reach up to 95% financing with amortization up to 50 years — the parameters and points logic are on the multi-family page.
The core design problem in these projects is the handoff: how construction financing advances, and how it converts into the insured loan at completion — the two phases must be engineered as one line before ground breaks.
Building to sell (spec) and building to hold are different lender lists and different structures entirely. Talking to me while the project is still on paper saves real money over talking after the drawings are done.
Common questions
Can I finance a self-managed build with no fixed-price contract?
Yes — some lenders specialize in self-builds, underwritten tightly: your budgeting ability, schedule and relevant experience, usually at lower leverage and higher rates. Fixed-price contract for better terms, or self-managing to save the builder’s margin — that trade is a number you can actually calculate.
How is interest paid during construction?
Generally interest-only, and only on what has been advanced: very little at foundation stage, most near completion. Estimate the full construction-period interest into the budget — it is a project cost, not a surprise.
I already own the lot. Does it count as my down payment?
Generally yes: land owned clear counts at value toward your equity — the most common form of “down payment” in self-build projects. If the land carries a mortgage, how the net equity counts varies by lender — confirm before you build the budget.
Do I have to refinance as soon as the build finishes?
Construction money is a short-term, higher-rate bridge; converting to a regular takeout mortgage at completion is the normal path. Best practice is pre-approving the takeout before ground breaks, so the moment the completion appraisal lands you convert seamlessly — and stop paying bridge pricing.
If I go over budget, will the lender top me up?
By default, no: advances stop at the approved amount, and increases mean re-underwriting. That is why contingency (commonly around ten percent) belongs in the budget from day one, and big-ticket prices get locked early. If an overrun is coming, talk to the lender first — never after.
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