In a world where time is money, someone looking to finance a construction project needs to take that sentiment to heart.
The nature of construction projects is that they come with a certain level of risk where things can go wrong and they can become a time consuming to properly manage.
When it comes to construction mortgage financing, the same things are true. What also is true is that similar to all forms of financing, lower cost, means lower risk. In order for lenders to provide low rates for a construction mortgage, they are going to place requirements and qualifications in place that will assure them of a low risk lending scenario.
This is where the cost trade off for borrowers comes in.
Lower cost construction financing in most cases is going to be more work and more headache to deal with all the terms and conditions and their sometimes seemingly unpredictable application to your project. There is nothing wrong with low cost deal. In fact I’ve never met anyone that doesn’t prefer it. But it does come with strings and each borrower who can afford to do so needs to decided if the added time and potential other costs that can come with it will be cheaper overall then selecting a construction mortgage with a higher interest rate but greater ease of use or convenience.
Its not uncommon for borrowers to find this hard to understand as after all many times their collective financing experience is based on buying a house, leasing a card, securing a credit line, applying for a credit card, and none of these are all that difficult to get if you have a strong financial profile and good credit.
But getting approved is only the first part. Meeting the conditions of the loan or mortgage are yet another. And when it comes to something like a construction project, the requirements and conditions can be very difficult to meet in some cases.
This is one of the reasons why private mortgage lenders provide a large majority of the construction loans issued on an annual basis across the province of Ontario.
Yes, private mortgages come with higher interest rates, but on average are approved much faster, provide a higher percentage of the construction costs, and have much more predictable and manageable draw schedules.
One form of construction mortgage financing is not necessarily better or worse than another. But to strictly be fixated on the interest rate may cause you to end up with a higher cost construction financing solution once you factor in all related costs, including the opportunity cost of your time.