Are you constructing your own home, garage, workshop, or any other structure? It is great because you can get exactly what you want. You get to decide about design, quality, budget, and more. However, one of the many decisions you’ll need to make is how to pay back the construction loan after the building is complete. Will you adopt a single-closing loan or two separate loans?

Construction loans are only for purchasing land and building structures. They usually last for no more than 12 months. You need a way to transition to a longer-term loan for lower payments that would come with a longer duration. You’ll need to pay off the construction loan once construction is finished. Many people do this by replacing it with a new loan that looks more like a standard 15 or 30-year mortgage.

Single-close construction loans

Single-close construction loans grant you the construction loan and the permanent loan at once. Your loan becomes a traditional mortgage when construction is completed. These loans are also known as construction-to-permanent loans.

Two-close construction loans

You need to get approved for two loans in a two-close construction loan. The loan will fund your project, and you’ll need to apply and get approved for a permanent loan separately after construction is completed.

Naturally, you’ll want to know which is better, and we’re here to help you with that. Call us to know more about construction mortgages in Canada.

Advantages of a One-Time Closing Loan

One application: It can feel like you have a never-ending research project when applying for a loan. You only have to go through the process once with a single-close loan.

One closing: Multiple closings mean greater costs. However, the cost difference might not be exciting, and you don’t necessarily come ahead with a single closing.

No payments: With few lenders, interest costs throughout the construction phase can be added to your permanent loan. This makes it easier for you to pay while you wait for your new home to be built. You’ll owe more and pay more interest. Delaying payments might be a sign that you’re almost at breaking point.

Security: You’re taking less risk when you have permanent financing in place before you ever borrow for construction. You’d have a hard time convincing a lender to approve your loan while you’re in-between jobs with a two-time closing. This might cause you to lose the home before you even get to live in it.

Locking rates: It will help you plan for your future when you finalize your permanent loan. You can calculate and budget for monthly payments well in advance because you’ll know what your interest rate will be. If you think rates will rise significantly during the construction phase, you can also lock in a rate. But if rates fall, some lenders allow you to adjust.

Advantages of Multiple Loans

Lower rates: Single-close loans probably go with slightly higher rates. You lower your risk and enjoy the convenience of one closing when you use a single loan, but those benefits come with a cost.

Flexibility: You’ll have to choose a prepackaged program when you use one loan. This means lenders may offer you choices of single-closing 15-year, 30-year. You get to go out into the marketplace and apply anywhere you want for any kind of loan when you keep your permanent loan separate.

If you’re planning to go for a construction mortgage in Canada or if you want to get advice from one of the best mortgage agents in Canada, you can contact us and we can help you.

What Draw/Progress-draw Mortgage

The Draw/Progress-draw mortgage is one of the construction loans which allows the builder to draw money during the building process. The loan is distributed in installments or according to the stages of the build.

The foundation part which is the first part of the loan will be given at the beginning of the build. Once the build is reached around 35-40 percent, the second part will be given. Once the construction is reached about 65-70 percent, the third part will be given.  The final part will be released once the build is at 100 percent.

Why Draw/Progress-draw mortgage

The progress-draw mortgage is favorable from a cash flow outlook. The builder doesn’t need to come up with the money for the construction upfront in this case.  However, inspections are required throughout the building process from the lender. This is to make sure that the construction is right on schedule and done properly.  The builder doesn’t get the next payment in case the structure doesn’t pass inspection.

Pros & Cons of Progress-draw mortgage

With the progress-draw mortgage, you’ll be charged interest from the date of your first payment.

You can’t change the mortgage once your lender advances the initial payment.

The Progress-draw mortgage must be secured by the land in addition to its improvement worth. This is combined to make up the total value of the project.

The builder is able to receive the foundation draw of financing at once if the plot of land has little or no mortgage.

You may need to raise up that cash yourself until the first disbursement of the loan if that’s not the case.

You need to come up with a significant amount of money up front if you’re planning to build a home by keeping your costs down. When estimating costs for material and labor and planning for unexpected contingencies, that amount of money has a tendency to increase.

We can help you if you’re looking for construction mortgages in Toronto. For more information on the construction loans, contact us now and we’ll be happy to assist you.

How and where can you find financing for home renovations? Well, there are a lot of options like home renovation centers such as Home Depot or IKEA. Even though these companies offer great products, they can’t match a financial institution’s lending rates. Borrowing from unconventional sources like this means higher annual interest rates and monthly payments.

Here are some options for getting renovation finance for your home.

A Home Equity Line of Credit (HELOC).

You can leverage your home equity and get a home equity line of credit. This is basically just a loan that you can pull money from and payback regularly until your term ends. Since the HELOC is a credit against your home, you can get a higher amount and it can cover all of your renovation plans. This is one of the best options for a renovation loan. This sort of credit usually comes with a low-interest rate which starts from 3-4 percent.

A Second Mortgage.

You can consider getting a second mortgage to cover your home renovation financing if the HELOC is not a good option for you. In case of default, a second mortgage is a mortgage second in priority. This means your first mortgage lender must be compensated first in case of a loan default. The second mortgages come with a higher interest rate than the first. However, you still benefit from rates much lower than what a retail store can give, so this option is also highly praised.

You can refinance your existing mortgage.

It might be a good idea to refinance and benefit from the current low mortgage rates if you are already several years into your existing mortgage. You’ll be able to use some of your home equity to get the cash you need to renovate. You’ll also save a lot of money on interest.

Do you need some help to getting started?

Talk to our top-rated mortgage agent in Toronto and we’ll help you find the right type of loan product for your home renovation project.