Your Guide to Turning a Plot of Land Into Your Dream Home

February 24, 2021

All About Construction Mortgages

Have you found a great location, but it's missing the home of your dreams? 


Well, fret not, because there’s a solution: a Construction Loan.


Typically a short-term loan (approximately a year), this loan option is designed to cover the cost of building that home you’ve pined for. You buy the land, build your home, and once the project is done, you refinance. 


Refinancing gives you a brand new loan that covers your completed home. 


What Makes This Loan Different? 


A Construction Loan is a risky prospect for the lender. Which makes qualifying for one harder than going the traditional home buying route. For example, if the lender isn’t sure you can also pay for your current living situation while your house is being built, you won’t qualify. 


The lender has to protect themselves because: 

  • There’s no collateral. 
  • Without a completed house, it’s easy for you to walk, and they have less leverage. 
  • Market fluctuations. 
  • If property values fall, the land could be worth less than the loan.
  • There’s no quality guarantee. 
  • The builder could do a poor job, which can affect your refinancing terms. When a home is already built, everyone knows exactly what’s being bought. With a Construction Loan, there’s no way to know for sure until it’s done. 


Usually, Construction Loans are established as interest-only variable rate loans. Which means, you pay interest on your borrowed amount instead of paying down the principal balance. This can make construction loan payments easier. 



How Does a Construction Loan Work?


Once you’ve qualified, the lender begins the payout schedule for the agreed upon amount. 


See, unlike a regular mortgage, the builder, the buyer, and the lender negotiate a schedule of draws. They determine the number of draws and how much is paid in each installment.


For example, a builder may receive a percent of the payment at each of these phases: when the loan closes, when the lot is cleared and foundation poured, after the house is framed, and when the roof is built and everything is sealed.


What to Consider…


Turning a chunk of land into a home that fits your unique brilliance is a dream come true. Who hasn’t day-dreamed of building their own home from scratch? 


We want to help you realize your dreams, and find that perfect balance between practicality and dreaming big. We care that you’re a happy homebuyer, so we have to do our due diligence. 


The lender isn’t the only one facing extra risks with a Construction Loan. You are too. 


Here are some potential risk factors: 

  • Not completed within your budget or on schedule.
  • This setback means you can’t move in on time. That can result in higher costs as you must continue to rent, or hold two mortgages for longer than planned. Also, you may have to pay a fee to extend your construction loan if the final payment is due before project completion.
  • Your home is worth less than it cost to build.
  • If the housing market drops, or the builder does a poor job, you have to pay the difference when you refinance the construction loan. 
  • When the time comes, you don’t qualify for refinancing.
  • Construction loans are temporary. When the project’s done, the balance must be paid. If you no longer qualify for refinancing because your income or credit drastically changed during construction, the lender refuses to extend the construction loan, and you can’t make the payment yourself, you could lose your new home to foreclosure. 


If these risks don’t seem like much of a concern, or you’re willing to gamble, then a Construction Loan may be the right choice for you. 


Make a well-informed decision that ensures you make the right choice for your unique needs. Consult with an expert today. Our services are free. 


So even if the best construction loan options may be found by checking with your local bank to see if you qualify, we’re always happy to consult. 


Including us in your plans, means we are with you every step of the way. Cheering you on, and offering industry insight and advice. 


An extra bonus? 


We’ll be ready when it’s time to refinance, and help you qualify for competitive rates and terms.


Share:

Recent Posts

Paying Off Your Mortgage As Quickly As Possible

By HomeHappy • June 11, 2025
Being a home owner is excellent, having a huge mortgage isn’t. So, if you have a mortgage that you’re looking to get rid of as quickly as possible, here are four things you should consider doing. Accelerate your payments Making the change from monthly payments to accelerated bi-weekly payments is one of the easiest ways you can make a difference to the bottom line of your mortgage. Most people don’t even notice the difference or increased payment. A traditional mortgage with monthly payments splits the amount owing annually into 12 equal payments. Accelerated biweekly is simply taking a regular monthly payment and dividing it in two, but instead of making 24 payments, you make 26. The extra two payments accelerate the paying down of your mortgage. Increase your regular mortgage payments Chances are, depending on the terms of your existing mortgage, you can increase your regular mortgage payment by 10-25%. Alternatively, some lenders even offer the ability to double-up your mortgage payments. These are great options as any additional payments will be applied directly to the principal amount owing on your mortgage instead of a prepayment of interest. Make a lump-sum payment Depending on your lender and your mortgage product, you should be able to put down anywhere from 10-25% of the original mortgage balance in a bulk payment. Some lenders are particular about when you can make these payments; however, you should be eligible if you haven’t taken advantage of a lump sum payment yet this year. Making a lump-sum payment is a great option if you’ve come into some money and you’d like to apply it to your mortgage. As this will lower your principal amount owing on the mortgage, it will reduce the amount of interest charged over the life of the mortgage. Review your options regularly As your mortgage payments debit from your bank account directly, it’s easy to put your mortgage on auto-pilot and not think twice about it until your term is up for renewal. Unfortunately, this removes you from the driver's seat and doesn’t allow you to make informed decisions about your mortgage or keep up to date with market conditions. So let’s talk about an annual mortgage review. Working through an annual mortgage review with an independent mortgage professional is beneficial as there may be opportunities to refinance your mortgage and lower your overall cost of borrowing. By reviewing your mortgage at least once a year, you can be sure that you’ve always got the best mortgage for you! There is no cost involved here, just a quick assessment and peace of mind. If you’ve got questions about your existing mortgage or want to compare your mortgage to options available today, please connect anytime. It would be a pleasure to work with you.
A flyer for the bank of canada announces a rate increase

Bank of Canada Rate Announcement Jun 4th, 2025

By HomeHappy • June 4, 2025
Bank of Canada holds policy rate at 2¾%. FOR IMMEDIATE RELEASE Media Relations Ottawa, Ontario June 4, 2025 The Bank of Canada today maintained its target for the overnight rate at 2.75%, with the Bank Rate at 3% and the deposit rate at 2.70%. Since the April Monetary Policy Report, the US administration has continued to increase and decrease various tariffs. China and the United States have stepped back from extremely high tariffs and bilateral trade negotiations have begun with a number of countries. However, the outcomes of these negotiations are highly uncertain, tariff rates are well above their levels at the beginning of 2025, and new trade actions are still being threatened. Uncertainty remains high. While the global economy has shown resilience in recent months, this partly reflects a temporary surge in activity to get ahead of tariffs. In the United States, domestic demand remained relatively strong but higher imports pulled down first-quarter GDP. US inflation has ticked down but remains above 2%, with the price effects of tariffs still to come. In Europe, economic growth has been supported by exports, while defence spending is set to increase. China’s economy has slowed as the effects of past fiscal support fade. More recently, high tariffs have begun to curtail Chinese exports to the US. Since the financial market turmoil in April, risk assets have largely recovered and volatility has diminished, although markets remain sensitive to US policy announcements. Oil prices have fluctuated but remain close to their levels at the time of the April MPR. In Canada, economic growth in the first quarter came in at 2.2%, slightly stronger than the Bank had forecast, while the composition of GDP growth was largely as expected. The pull-forward of exports to the United States and inventory accumulation boosted activity, with final domestic demand roughly flat. Strong spending on machinery and equipment held up growth in business investment by more than expected. Consumption slowed from its very strong fourth-quarter pace, but continued to grow despite a large drop in consumer confidence. Housing activity was down, driven by a sharp contraction in resales. Government spending also declined. The labour market has weakened, particularly in trade-intensive sectors, and unemployment has risen to 6.9%. The economy is expected to be considerably weaker in the second quarter, with the strength in exports and inventories reversing and final domestic demand remaining subdued. CPI inflation eased to 1.7% in April, as the elimination of the federal consumer carbon tax reduced inflation by 0.6 percentage points. Excluding taxes, inflation rose 2.3% in April, slightly stronger than the Bank had expected. The Bank’s preferred measures of core inflation, as well as other measures of underlying inflation, moved up. Recent surveys indicate that households continue to expect that tariffs will raise prices and many businesses say they intend to pass on the costs of higher tariffs. The Bank will be watching all these indicators closely to gauge how inflationary pressures are evolving. With uncertainty about US tariffs still high, the Canadian economy softer but not sharply weaker, and some unexpected firmness in recent inflation data, Governing Council decided to hold the policy rate as we gain more information on US trade policy and its impacts. We will continue to assess the timing and strength of both the downward pressures on inflation from a weaker economy and the upward pressures on inflation from higher costs. Governing Council is proceeding carefully, with particular attention to the risks and uncertainties facing the Canadian economy. These include: the extent to which higher US tariffs reduce demand for Canadian exports; how much this spills over into business investment, employment and household spending; how much and how quickly cost increases are passed on to consumer prices; and how inflation expectations evolve. We are focused on ensuring that Canadians continue to have confidence in price stability through this period of global upheaval. We will support economic growth while ensuring inflation remains well controlled. Information note The next scheduled date for announcing the overnight rate target is July 30, 2025. The Bank will publish its next MPR at the same time.

RRSP As A Downpayment

By HomeHappy • May 28, 2025
Did you know there’s a program that allows you to use your RRSP to help come up with your downpayment to buy a home? It’s called the Home Buyer’s Plan (or HBP for short), and it’s made possible by the government of Canada. While the program is pretty straightforward, there are a few things you need to know. Your first home (with some exceptions) To qualify, you need to be buying your first home. However, when you look into the fine print, you find that technically, you must not have owned a home in the last four years or have lived in a house that your spouse owned in the previous four years. Another exception is for those with a disability or those helping someone with a disability. In this case, you can withdraw from an RRSP for a home purchase at any time. You have to pay back the RRSP You have 15 years to pay back the RRSP, and you start the second year after the withdrawal. While you won’t pay any tax on this particular withdrawal, it does come with some conditions. You’ll have to pay back the total amount you withdrew over 15 years. The CRA will send you an HBP Statement of Account every year to advise how much you owe the RRSP that year. Your repayments will not count as contributions as you’ve already received the tax break from those funds. Access to funds The funds you withdraw from the RRSP must have been there for at least 90 days. You can still technically withdraw the money from your RRSP and use it for your down-payment, but it won’t be tax-deductible and won’t be part of the HBP. You can access up to $35,000 individually or $70,00 per couple through the HBP. Please connect anytime if you’d like to know more about the HBP and how it could work for you as you plan your downpayment. It would be a pleasure to work with you.