Home Construction Loans
“Home Construction Loans Should Fit The Needs Of the Property Owner or Builder”
Toronto Home construction loans can be obtained from both bank or institutional lenders as well as private mortgage lending sources.
But just because the source of home renovation and construction loans is a private lender, does not automatically infer that its inferior or higher cost.
Home construction financing needs provide a good match between what the lender program delivers and what the customer or applicant requires.
In many instances, Toronto home construction loans are provided through a private second mortgage registered after a residential home mortgage in first position on the subject property. The private mortgage is not typically selected because the applicants could not qualify for a bank construction loan. The rationale for using a private mortgage is typically based on some combination of:
- the speed in which an approval can be secured
- the greater predictability and simplicity of the draw management process
- the lack of a requirement of a take out mortgage being arranged at the beginning of construction in many cases.
Yes, on the surface a second mortgage from a private lender is going to cost more in terms of stated interest rate. But there is a cost benefit relationship in that the added initial cost does provide certain benefits that individuals are willing to pay for. By the end of the project, however, there is no guarantee that the overall cost of a bank construction financing source will be cheaper than a private money source, all things considered.
In the case of bank or institutional construction mortgages, the potential exists that this can be your lowest cost of financing. This assumes that you have the necessary time to apply and manage the financing process with an institutional lender, that there will not be any unexpected costs incurred due to draw reductions or delays, or if the take out mortgage that you’re going to have to take from the same bank or institutional mortgage lender is providing the best pricing available to you in the market.
Just having a singular focus on the interest rate written into the mortgage commitment will not necessarily guide you to the best choice of construction financing.
The best way to approach the Toronto home construction financing process is to work with an experienced mortgage broker that provides construction loans and has a strong track record of not only placing both bank and private lending construction mortgage, but also can provide customer feedback of their help and assistance through out the construction loan administration process.