In almost all cases, construction projects will require at least a construction building loan and a long term take out mortgage.
The construction loan for building is the primary form of construction financing most builders, property owners, or buyers are focused on when planning out their projects. But the take out mortgage at the end of the project is equally important to the overall success if the property is going to be retained by the owners after construction is complete.
For sake of greater clarity, when we speak of a construction take out mortgage, we are referring to a long term residential or commercial property mortgage that will be used to repay the construction loan and likely any other mortgages registered against the subject property. This mortgage will end up being the primary mortgage for the property and will likely be amortized for 25 years or longer, depending on the type of property and the repayment plans of the owners.
With institutional lenders, the construction loan and the take out mortgage are arranged at the same time and in fact the only reason the construction financing is provided in the first place is so the institutional lender can acquire the more valuable long term mortgage for the property.
With private lenders, which provide a very high percentage of construction loans in Ontario, the requirements for having a take out loan approved at the time of construction is not always required, especially in strong urban markets where several long term mortgage lenders are going to be interested in the property.
But just because a take out mortgage is likely to be available doesn’t mean it will be secured in time to pay out the construction building loan. And when a delay occurs after construction is completed, the situation can become quite serious in terms of the incremental costs that may be incurred and the potential risk to the owner’s equity in the project if long term financing is significantly delayed.
Here are some things to consider when you don’t get the take out mortgage arranged before construction begins.
When the project is a single family residential home, the prospects of getting a timely long term mortgage after construction starts is going to be very high. But when you get into bigger, more complex projects, especially ones that are not in highly active markets for the related property, the take out mortgage process can be more difficult and time consuming than you might otherwise think.
But regardless of your situation, its always good to get things arranged sooner than later and avoid any additional costs or time pressures can can arise at the end of the project when the take out mortgage is not yet secured.
If you have a construction project in the works or are in immediate need of a take out mortgage for your residential or commercial project, please give me a call so I can quickly assess your situation and provide relevant options for your consideration.