Construction loans in Toronto are becoming more and more popular as homeowners start thinking about custom homes. If you’re new to the game, here are a few things that you’ll need to know.
These types of commercial mortgages come in three different categories. There are bigger financial institutions like banks as well as smaller ones like credit unions and finally specialized construction lenders that supply loans.
Overall, the bigger institutions offer lower rates but their products are less flexible. The specialized construction lenders are the most flexible of the bunch with high interest rates.
Buy The Lot
Regardless of the financial institution you finally choose, most of them will require that you buy the lot with your own funds. After that, they will finance around 75% of the total cost of the construction loans. This can make it difficult for individual homeowners because they need a lot of cash upfront.
However, it’s possible to get credit used to finance 50% of the lot value. Specific institutions often finance 80% of the construction cost and or 80% of what is considered to be the future value.
Pay Structures and Interest Rates
For these types of construction loans in Toronto interest rates can vary quite a bit. With the bigger banks, the rates can be low but there are usually not very many fees involved.
Credit unions on the other hand can often offer monthly interest-only payments during the construction process. Be aware there is usually a fee that can come up to around .85% of any future funding amounts.
Specialized construction lending companies allow you to make interest-only payments and then deduct them from the next financing draw. This is to your advantage because you don’t need to pull money out of your pocket to continue the process.
Get in touch with us today if you have questions about construction loans in Toronto.
