Overview
Construction loans in Canada are specialized, short-term financing solutions designed to fund the building of a new home or major renovations to an existing property. Unlike traditional mortgages, these loans release funds in stages as construction progresses, ensuring that money is available for each phase of the building process. Construction loans are available for both residential and commercial projects, including multi-family, rental, and mixed-use developments.
How Construction Loans Work
- Disbursement Structure: Funds are advanced in increments—called “progress draws”—at key construction milestones (e.g., foundation, framing, roofing).
- Interest Payments: Typically, only interest payments are required during the construction period. Once the build is complete, the loan may convert to a traditional mortgage with blended principal and interest payments.
- Collateral: The unfinished home is collateral, making these loans riskier for lenders compared to conventional mortgages.
- Down Payment: Most lenders require a down payment of 20–25% of the total project cost. Some programs, especially for multi-unit residential, may offer higher loan-to-value ratios.
- Builder Requirements: Lenders typically require a reputable, experienced, and insured builder. If you are self-building, you must demonstrate the necessary experience and skills.
- Inspections: Lenders conduct inspections before each disbursement to ensure construction is on track.
Construction Loan Options & Lender Offerings
Major Canadian Banks & Credit Unions
| Lender/Program | Key Features | Suitable For |
|---|
| RBC Construction Mortgage | Progress draws, interest-only during build, converts to mortgage | New builds, major renovations |
| Meridian Credit Union | Staged advances, interest-only during build, self-build options | Ontario, new builds/self-build |
| Conexus Credit Union | Construction mortgages for Saskatchewan customers | New builds in Saskatchewan |
| TD (Canada/US) | Construction-to-permanent, 20% down payment, builder vetting | Custom home builds |
| CMHC Construction Loans | Insured loans, especially for rental/apartment projects | Multi-family, affordable housing |
| First National | CMHC/conventional, staged draws, exit strategy required | Multi-family, commercial, rentals |
| Equitable Bank | Financing for laneway homes and custom builds | Homeowners adding units |
Note: Not all lenders operate in every province; always check eligibility.
Government Programs & Incentives
- CMHC Apartment Construction Loan Program: Offers low-cost loans up to 100% of residential project costs for standard rental, seniors, and student housing. Minimum loan amount is CAD $1,000,000. Focuses on increasing rental supply.
- First-Time Home Buyer Incentive: Not construction-specific, but may be combined with a construction mortgage if building your first home.
- GST/HST New Housing Rebate: Rebates part of the GST/HST paid on building a new home or major renovations.
Provincial Variations
- Ontario: Meridian Credit Union is a prominent provider. Local regulations and permit requirements apply.
- Saskatchewan: Conexus Credit Union is a notable lender.
- Quebec, BC, Alberta: Most major banks offer construction financing, but requirements may differ by province.
- Municipal Permits: Regardless of province, all construction projects require proper building permits and inspections.
Typical Application Requirements
- Detailed construction or purchase contract with estimates and timelines
- Builder’s credentials (license, insurance, financial statements)
- Land purchase details
- Building permits and architectural plans
- Proof of income, assets, and creditworthiness
- Contingency fund for unexpected costs (typically 10–15% of project cost)
Rate Comparison
| Loan Type | Down Payment Required | Typical Rates (2025) | Notes |
|---|
| Residential Construction | 20–25% | Higher than traditional mortgage | Short-term, interest-only during build |
| CMHC Multi-Family | As low as 5–15% | Preferential rates | Available for eligible rental/apartment projects |
| Self-Build | 25%+ | Higher risk premium | Strict experience/qualification criteria |
Rates vary by lender, project, and borrower profile; construction loans generally have higher rates than standard mortgages due to increased risk.
First-Time Homebuyer Considerations
- Construction loans may be paired with first-time buyer programs, but you must meet both sets of criteria.
- Ensure you have adequate savings for the down payment, contingency fund, and any cost overruns.
- Thoroughly vet your builder and confirm project feasibility before applying.
Recommendations & Next Steps
- Compare Options: Use a platform like theratefinder to compare construction loan rates and lender requirements across Canada. Theratefinder offers a multi-step application process and access to competitive rates from top lenders for residential, commercial, and construction loans.
- Professional Guidance: Work with a mortgage broker or specialist with experience in construction financing.
- Prepare Documentation: Gather all permits, contracts, plans, and financials before applying.
- Start Your Application: For a personalized construction loan solution, begin your application at theratefinder.ca/onboarding.
Summary
Construction loans in Canada provide essential financing for building new homes, major renovations, and investment properties. They feature staged funding, rigorous qualification, and generally higher rates than traditional mortgages. Lender offerings and eligibility requirements vary by province and project type. Leverage comparison platforms like theratefinder and seek expert advice to secure the most suitable construction financing for your needs.