How Construction Mortgages Work
Construction mortgages are fundamentally different from regular purchase mortgages. Instead of receiving one lump sum at closing, the lender releases funds in stages called “draws” as construction progresses. This protects the lender by ensuring the money is only released as value is created.
A typical construction mortgage in BC has 4-5 draw stages, each tied to a construction milestone. The lender sends an inspector to verify the work is complete before releasing the next draw.
Typical Draw Schedule
While every lender structures draws slightly differently, here is a common 5-stage draw schedule for residential construction in BC:
- Draw 1 — Foundation & Site Work (15%): Excavation, foundation pour, underground services.
- Draw 2 — Framing (25%): Structural framing, roof, windows and exterior doors installed.
- Draw 3 — Lockup (25%): Building is weather-tight. Rough plumbing, electrical, HVAC complete.
- Draw 4 — Interior (20%): Drywall, flooring, cabinets, fixtures, interior trim.
- Draw 5 — Completion (15%): Final inspection, occupancy permit, landscaping, driveway.
What Lenders Require
Construction lenders in BC typically require building permits and municipal approvals, detailed construction budgets with contractor quotes, architectural drawings and engineering reports, builder credentials and track record, proof of land ownership or simultaneous purchase, and an appraisal of the completed project value.
For multi-family construction, lenders may also require pre-sale agreements, market feasibility studies, and Phase 1 environmental assessments.
Rate Ranges for Construction in BC
Construction mortgage rates in BC range from approximately 6.99% for institutional lenders on low-risk projects to 12.99% for private lenders on speculative builds. Most construction mortgages are interest-only during the build period, which keeps payments manageable during construction.
Once construction is complete, you typically refinance into a standard “takeout” mortgage at much better rates. Planning this exit mortgage upfront is critical to your overall cost.
Talk to Us
E7 Mortgages has structured construction financing for projects across the Lower Mainland. Whether you’re building a custom home or a multi-family complex, we can help you navigate the process. Call (778) 834-9618 for a free consultation.