The key is to make sure that you’re matching your requirements to the lender’s funding criteria and construction loan terms so you’re not only getting a good value in terms of cost of funding, but making sure that the funds provided are going to be predictable and on a timely basis.
The two main categories for Toronto home construction loans are from bank or institutional lenders, and from private mortgage lenders.
Bank and institutional lenders are going to be the potential lowest cost option from an interest rate charged point of view, but that doesn’t always translate into the lowest overall cost of financing once all the dust is settled and the project is complete.
There can also be some significant differences from the home construction financing program provided by one institutional lender compared to another.
The private mortgage financing option is on the surface more expensive in terms of the stated interest rate on the construction mortgage.
But once again, home construction loans provided through private lenders aren’t automatically going to be more expensive once all the related costs are factored in to manage the construction financing from beginning to end.
For instance, some of the major benefits of private mortgage financing for Toronto home construction loans is that the approval process is faster than what you will expect from a bank or institutional lender, the draw process is more dependable and predictable, and you don’t necessarily have to have your take out mortgage or long term funding in place before the construction project is underway.
In order to be able to truly take advantage of the potential lower cost financing provided by a bank or institutional lender, then you have to 1) allow more time to qualify for construction financing, and to administer the construction draw process; 2) have an alternative source of funding available in case their are any draw reductions or delays in draw advances during the construction period.
To figure out which category of home construction loans and which specific lender in one of the two categories is going to be the best fit for your specific project and cash flow requirements, I strongly recommend that you work directly with an experienced construction mortgage broker from start to finish so that you always have the information at hand, and the coaching available, to make the construction financing decision that’s best for your family.
If you have a Toronto home construction loan requirements right now, or are planning a project in the near future, I suggest that you give me a call so we can go over your requirements and discuss potential construction financing options that would be a good fit for your needs.