Construction Mortgages in Ontario How Do They Work

By : Radu Arvatescu

Whatever property type you need to build, for any type of business or industry, construction mortgages in Ontario with Mortgage Capital Investment can help you reach your goals.

Commercial financing for construction can allow you to push ahead with a development that you otherwise wouldn’t have the capital for. There are some significant differences to commercial mortgages, which you can learn about in the following sections.

Who Should Apply for Construction Mortgages?

Owning your own commercial property can provide the security that helps your business to grow. Whether you need to expand or start from the ground up, construction mortgages in Ontario can help you to develop an asset.

These unique mortgages are used by commercial entities to:

• Move out of rented commercial space to build a fully owned base of business.
• Develop a commercial property with the intent of renting it.
• Develop a specialized business like a hotel, law firm, or medical practice.
• Build residential developments such as condominiums, apartments, flats, and affordable housing complexes.
• Develop buildings for industrial use.
• Expand on a site that is already owned, with or without an existing structure.

With a construction mortgage, you can achieve your goals, but it’s important to understand the technicalities to see if this is the right lending product.

What’s Different About Construction Mortgages?

When purchasing a traditional mortgage, your business will receive the amount in full through a lump sum. This is what most people in the commercial and residential market are familiar with.

Construction mortgages in Ontario work the complete opposite way, with the loan being dispersed over the duration of the project. This is what’s known as a ‘draw’ in the industry. Your schedule may be flexible and based on inspections and invoices. Or, the draw could be pre-determined based on a quote from a contracting firm.

At each stage of the draw, funds will be released to cover the next project milestone. Grading, foundation laying, framing, and cladding could all be considered milestones on the build. The specifics will depend on the type of structure and the roadmap provided by the construction firm.

These mortgages are closely managed. The lender will send an inspector on-site to confirm that each milestone has been reached. This type of structure can be incredibly useful for budget management, but it can present challenges if overruns occur. It’s important to remain in constant communication with both the construction firm and the lender throughout the process.

How Does Interest Work on Construction Mortgages in Ontario?

Beyond the funds’ release schedule, there’s another major difference to be found in construction mortgages. Instead of paying a set amount of interest throughout the term, you will start by paying interest in increments that are proportionate to the funds released. In this way, interest payments start small, before increasing towards the completion of the project.

At the conclusion, the full principal of the loan will be due. As a borrower, you can pay the entire amount in a lump sum. More realistically, you will take out a standard commercial mortgage which will be used to pay off the construction mortgage. The completed project will become collateral and normal amortization will begin.

A construction mortgage is a realistic pathway to full commercial property ownership, and with the interest structure, these special mortgages are relatively affordable.

Source a Construction Mortgage Through an Ontario Broker

If you think this would be the best option for your expansion or ground-up project, you can work with a broker to compare construction mortgages in Ontario. With a broker, you’ll enjoy the most competitive rates and terms with access to the most reputable lenders in Canada.

To book an appointment to discuss your needs and learn more about how Mortgage Capital Investment can help you, call +1 289-800-4840 or email info@mcinvest.ca.