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.