Type of Construction Mortgages in Canada
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Hildegard01
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Hi,
It’s exciting to have a home built for you. If you really want to build a home rather than buying an existing home, you can go for a construction mortgage. But, you need to know the different type of construction mortgages available. The two type of home construction mortgages in Canada are: 1. Construction-to-permanent: You borrow to pay for construction. When you move in, the lender converts the loan balance into a permanent mortgage. It’s two loans in one. During the construction phase, you pay interest only on the outstanding balance. The lender converts the construction loan into a permanent mortgage after the contractor finishes building the home. 2. Stand-alone construction: Your first loan pays for construction. When you move in, you get a mortgage to pay off the construction debt. It’s two separate loans. A stand-alone construction loan can work out well if it allows you to make a smaller down payment. Some disadvantages are: 1. You pay for two closings and two sets of fees — first, on the construction loan; second, on the permanent mortgage. 2. You can’t lock a maximum mortgage rate. If rates rise during construction, you might have to pay a higher-than-expected interest rate on the permanent loan. You can choose the type according to your needs and conditions. |