Construction mortgage refinancing involves the repayment of the primary construction financing with another mortgage facility at or near the end of the construction project.
This is primarily required in the following three scenarios.
Build to Own. The property owner, builder, or developer is intending to retained the property after construction is completed and either self occupy it or rent/lease out the space to a third party.
Under this scenario, the construction mortgage would be refinanced by a long term take out mortgage, likely from a bank or institutional lender. The refinancing action would take place once the project has been completed an an occupancy permit granted to the property owner.
More Construction Funds Required. There are times when either more construction funds above and beyond the amount approved for the project are required and the initial construction lender is not prepared to provide further funding. In this situation, there is either a second construction mortgage registered behind the first mortgage, or the first mortgage is refinanced with a new mortgage set at a larger amount.
Another situation that happens where more construction financing is required is when the builder or property owner has not been able to get the primary construction lender to advance draws on time and/or for the full amount required to meet the obligations of the project. In these cases, the construction mortgage in place is refinanced with a new construction lender.
Delay In Exit Especially in the case of condominium developments, there can be considerable delays between the time the construction project is finished and funds are available to the project from the sale of condo units.
When the project is completed, bridge financing can typically be arranged at cheaper rates than the construction mortgage rate due to the lower risk associated with a finished product. A construction bridge loan can both lower the cost of capital for the project until exit funds become available and provide incremental capital to cover off the administration and operating costs of the project as well.
Depending on the specific project and the specific construction mortgage refinancing requirement, there can be both bank and private mortgage refinancing options to consider.
The best way to determine the right approach for a particular construction mortgage refinance request is to work with an experienced mortgage broker who has access to a broad array of construction financing sources.
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