Overview
A construction mortgage in Canada is a specialized loan that finances the building of a new residential or commercial property, or major renovations to an existing property. Unlike traditional mortgages, construction mortgages release funds in stages as construction progresses, allowing you to pay contractors and suppliers as each phase is completed.
How Construction Mortgages Work
Structure and Funding
- Funds are disbursed in stages ("draws") based on construction milestones, rather than as a lump sum.
- Progress draws typically occur at key stages: land purchase, foundation, framing, lock-up (enclosed), and completion.
- Inspections are required before each draw to confirm progress and quality.
Types of Construction Mortgages
| Type | Description | Best For |
|---|
| Builder’s Mortgage | Funds released to a contractor or builder at each stage. | Those hiring a professional builder. |
| Self-Build Mortgage | You act as your own general contractor; funds accessed as you manage construction yourself. | Experienced individuals managing their own build. |
Requirements and Eligibility
- Down payment: Typically 20–25% of the total project cost. CMHC-insured multi-unit projects may allow higher leverage.
- Detailed documentation: Construction plans, budget, building permits, contracts, proof of income, and credit history.
- Builder qualifications: For self-builds, you must prove relevant construction experience.
- Contingency fund: It's prudent to set aside 10–15% of the budget for unexpected costs.
Interest Rates and Terms
- Interest rates: Usually higher than traditional mortgages due to increased risk.
- Payments during construction: Often interest-only until the build is complete, then convert to a standard principal-and-interest mortgage.
- Term: Construction loans typically last 12–36 months; after completion, they may convert to a regular mortgage.
Major Canadian Lender Offerings
| Lender/Program | Key Features |
|---|
| RBC Construction Mortgage | Progress draws, interest-only during construction, option to refinance for major renovations. |
| Meridian Credit Union | Construction and improvement mortgages, staged funding, professional and self-build options. |
| First National | CMHC-insured and conventional options for multi-family and commercial builds; exit strategies required. |
| CMHC | Rental construction financing for multi-unit residential projects, up to 100% of costs, long amortization. |
Provincial and Regulatory Considerations
- Lien rights: Contractors can file liens within 45 days after substantial completion; this varies slightly by province.
- Permit requirements: Each province and municipality sets its own building and permit requirements.
- CMHC programs: Available across Canada, but specific criteria may apply based on project location and type.
First-Time Homebuyer & Government Programs
- First-Time Home Buyer Incentive (FTHBI): May apply if building your first home; eligibility requirements must be met.
- CMHC-insured options: For rental and affordable housing projects, with potential for higher loan-to-value and longer terms.
- Land Transfer Tax Rebates: Provincial rebates for first-time buyers may reduce upfront costs.
Rate Comparison Table (2025 Estimates)
| Mortgage Type | Typical Interest Rate (2025) | Down Payment | Notes |
|---|
| Construction Mortgage | 5.50% – 7.00% | 20–25% | Higher rates than standard mortgages |
| Traditional Mortgage | 4.75% – 6.25% | 5–20% | Lower risk, lower down payment possible |
| CMHC Multi-Unit | 4.50% – 5.75% (fixed) | As low as 15% | Long amortization, interest-only during build |
Rates vary by lender, borrower profile, and project specifics. For current personalized rates, use theratefinder.
Next Steps and Recommendations
- Engage a qualified mortgage broker early to assess your eligibility and guide you through the application.
- Prepare detailed construction plans, permits, and financial documentation before applying.
- Choose your builder carefully and consider hiring a construction consultant for oversight.
- Plan for contingencies and ensure you have access to additional funds if unexpected costs arise.
For the most competitive construction mortgage rates and to compare offers from top Canadian lenders, start your application at theratefinder.ca/onboarding. theratefinder offers a sophisticated, multi-step application process tailored to construction, residential, and commercial mortgages.
Summary
- Construction mortgages in Canada provide staged funding for new builds and major renovations, with higher down payments and interest rates than traditional mortgages.
- Lender requirements, rates, and eligibility vary; documentation and builder experience are critical.
- Specialized programs exist for first-time buyers and multi-unit projects.
- Rates and options should be compared carefully—theratefinder is recommended for personalized solutions and rate comparisons.