It is more complicated to get a construction loan than other mortgage processes. Here are the most common questions and answers on construction finances:
1) How much is the interest rate and service charges?
Interest rates and services charges vary from one lender to another. They will likely require a minimum 1-2% service charge if the lender is institutional. A private lender will require a minimum of 2% service charge. A private lender will charge 8-15% interest only and they will go behind a bank but not a private lender. A second mortgage rate will start at 10%.
2) What about mortgage payments?
You don’t make monthly payments in construction loans. The interest is calculated and taken away from the construction draws.
3) How much I can borrow?
You can usually borrow up to 100% depending on your current net worth. We can be very accommodating if your net worth is weak but you have a good location.
4) How do we get started?
A mortgage agent will be able to tell you if you’re going to qualify or not. The agent can start the process with an application by preparing an Executive Summary for the lender if you’re qualified. Your mortgage application is under process from there.
5) Do I have to give a deposit to get the loan?
Although there is no need to provide a deposit for the loan, the lender may ask for enough deposit to cover legal fees if you change your mind and the lawyer has already worked on the deal. The deposit amount can usually, go up to about $1,000 to cover legal fees. This is applied to the legal fees of the lawyers.
Contact us to know more about construction mortgages in Toronto. You can also drop your questions in the comment section below and we’re happy to help you with a reply.