Interest rates on construction loans can very quite a bit depending on the type and size of project, the source of financing, and the security being offered.

Lets go through each of these starting with the source.

Banks and other institutional lenders that provide construction loans will do so at prime plus pricing. If mortgage insurance is involved, then the cost of financing will increase by the premium associated with the mortgage insurance. A great deal of construction financing is provided by private lending sources where the range of interest rate charged is between 8% and 14% depending on other factors.

So basically, right off the bat, there is a the present time a 4% to 5% differential between bank and private mortgage rates in general terms.

If the property being offered for security is free and clear at the time of construction whereby a first mortgage position can be offered for the construction mortgage, then the cost of financing is going to be lower than if the construction loan was registered in a second position. The financing premium from a first to second mortgage registration position is 2% to 4% depending on the project and the lender.

Private mortgage lenders will also typically charge a lender fee on closing which is also is cost of financing that needs to be considered.

Despite the fact that private mortgage construction financing is more expensive than bank or institutional financing, the majority of every home construction loan are financed by private lenders at times due to the more streamlined approach to applying for construction financing and the more predictable draw administration process. The key with bank construction financing in terms of lower interest cost is meeting all the requirements of funding so that you do not incur incremental project costs from delays or cut backs in draw advances which are not uncommon. If there are issues that create additional costs, then you really have to add that into your calculation of the effective financing rate for the overall project.

Banks tend to also want you to be approved by them for the take out mortgage before construction begins. If you end up getting a less competitive long term take out mortgage than what you could have secured from other lenders, then that needs to be added into the true construction cost as well.

The choice of construction financing and building construction loans tends to be a combination of rate and fit with the requirements of the builder or owner and its not uncommon that individuals will choose higher priced options in order to take advantage of the other features and benefits they offer than cheaper money sources are not noted for.

Click Here To Speak To Construction Mortgage Broker Joe Walsh

The post Interest Rates For Construction Financing first appeared on Ontario Construction Loans And Mortgage Financing.

“Here Are Some Typical Interest Rate Ranges For Different Types of Construction Financing Mortgages”

Construction loans are basically provided from three mortgage lender classifications and three mortgage registration positions, each impacting the risk to the lender and rate to the borrower.

In terms of mortgage lender classification for construction loans, there are the major banks, secondary banks, and private lenders.

The major banks tend to own the institutional construction financing in larger centers for residential and commercial properties as they will finance these deals at 2 to 3 percent over the prime rate.

The secondary banks and credit unions will provide more construction financing in more rural or less prime market area where the major banks have less interest and will provide construction mortgages more in the prime plus 4% to 6% range.

The third category, which is also the largest category for construction loans, is private mortgage lenders. Private lenders will provide construction loans for 8% to 10% on both residential and commercial properties.

These rates, which can still vary outside of the ranges mentioned, are related to a first mortgage position on the property.

Institutional lenders do not typically provide construction mortgage financing in a second position on a property unless the first mortgage is very small in relation to the value of the property prior to construction. But when a construction loan is issued in a second position, the construction loan rate is going to go up by approximately 2% on average.

The same is true of private mortgage construction loans in that the higher the mortgage registration position, the higher the interest rate on the construction loan. And unlike institutional construction mortgages, many private construction loans are registered in a second position against the title of the property after the land or site acquisition mortgage. In some cases where the equity is high enough and the overall project considered to be well suited for a strong real estate market, the private mortgage lender may even consent to providing a construction loan registered in a third position on title.

Similar to the institutional construction financing requirements, a second mortgage position on a private construction mortgage will command an interest rate increase of approximately 2% from what would be offered in a first mortgage position and a construction mortgage provided in third security position may command an interest rate increase of 4% to 8% above what would be charged for a first mortgage registration against the subject property.

Remember that these are only general guidelines you can apply to get a feel for what certain lenders and mortgage registration positions will charge and that the actual rates will vary by lender and construction project.

Click Here To Speak With Construction Mortgage Broker Joe Walsh

The post Construction Financing Interest Rates first appeared on Ontario Construction Loans And Mortgage Financing.