How does a construction mortgage work in Ontario?

The lender advances money in stages as construction is completed, after an inspection or appraisal at each stage. You usually pay interest only on the amount advanced. At completion, the loan converts to a regular mortgage.

Can I be my own general contractor?

Some lenders allow owner-built homes, often with a larger down payment, a detailed budget and proof of relevant experience. Owner-built homes generally do not carry the Tarion new home warranty.

What is a holdback on a construction mortgage?

Under Ontario's Construction Act, the payer on a building contract generally holds back 10% of payments until lien rights expire, which protects trades and suppliers. Lenders may also hold back funds until stages are complete. Your lawyer handles this.

Do you help with construction mortgages?

Yes. Tell me about your land, plans, builder and budget, and I will explain the options, the draw timing and what you will need before you break ground.

Construction Mortgages in Ontario

Q: How much down payment do I need to build a house?

It depends on the lender and whether the mortgage is insured. Many construction files need more equity than a resale purchase, and land you already own can count toward it. I can tell you what applies once I see your land, budget and income.

The short answer

A construction mortgage pays out in stages, called draws or progress advances, as the home is built. Before each draw, the lender checks the work completed, usually through an appraiser or inspector. You normally pay interest only on the money advanced so far. When the home is finished and ready to live in, the loan becomes a regular mortgage.

Builder financed or draw mortgage?

	Completion (builder carries the cost)	Progress draw mortgage
Typical use	Buying a new home or condo from a builder, often pre-construction	Custom build on your land, owner-built, or contractor-built
When funds advance	Once, at closing	In stages as work is completed
Who finances the build	The builder	You, through the lender's draws plus your own funds
Your main risk	Closing delays and qualifying again close to closing	Cost overruns and timing gaps between draws

How a draw schedule works

Lenders set their own schedules, but a common pattern is a few draws tied to stages such as:

Land and foundationMany lenders want the land purchased or owned, and permits in place, before the first draw.
Framing and roof, closed inThe structure is up and weather tight.
Mechanical, insulation and drywallPlumbing, electrical and heating roughed in and inspected.
CompletionFinished, with occupancy permission from the municipality.

Each draw is usually based on the percentage of work completed against the "as complete" value or budget, minus amounts the lender holds back. Draws can take a few business days to arrange because of inspections and title searches, so your builder and trades need to know the timing.

Plan for the gaps

You pay first, then get reimbursed. Draws usually cover work already done. You or your builder need cash to reach each stage.
Holdbacks. Under Ontario's Construction Act, the payer on a building contract must generally hold back 10% of payments until lien rights expire, to protect trades and suppliers. Lenders often hold back too. Your lawyer manages this.
Contingency. Budget for overruns. Lenders look at whether you can finish the home if costs come in higher.
Interest during the build. Interest-only payments on advanced funds are common, and they rise as more is drawn.
Insurance. You will need builder's risk or course of construction insurance while the home is being built.

What lenders usually want

Building permit, stamped plans and a detailed cost breakdown or fixed price contract
Proof you own the land, or a plan to buy it
Your builder's details. In Ontario, builders of new homes must be licensed by the Home Construction Regulatory Authority, and new homes from licensed builders come with the Tarion warranty. Owner-built homes generally do not have Tarion coverage, and some lenders ask for more experience or a larger down payment.
Your income, credit and down payment, the same as any mortgage. The stress test applies when you qualify.

Down payment, insurance and amortization

Many construction files need more equity than a resale purchase, and land you already own can count toward it. Insured progress-advance mortgages exist, with less than 20% down, for eligible borrowers and builds. Since December 15, 2024, insured mortgages on new builds can have up to a 30-year amortization.

Rebates for first-time buyers who build

If you are a first-time buyer building your own home, the federal first-time home buyers' GST/HST rebate can apply to owner-built homes where construction began on or after March 20, 2025, and Ontario offers a matching first-time buyer rebate on the provincial part of the HST. Conditions and limits apply, so confirm with your accountant or lawyer.

Converting to a regular mortgage

At completion the lender does a final inspection, confirms occupancy, and releases the final draw. The loan then converts to a standard mortgage with your chosen term and amortization. If you used a short term or private construction loan, this is when you move to a long term lender, so plan that exit before you break ground.

Sources

Rules checked against the sources above on October 26, 2026. Government rules change, so confirm the current version before you rely on a number.

Construction mortgages, one draw at a time.