Construction Loans Calculator
You can borrow money to build a new home through a construction loan. Construction loans will only require interest payments while your home is being built, and it can be converted to a regular mortgage with principal repayment once construction is complete. Use the construction loan calculator below to find out how much a construction loan would cost.
Final Interest-Only Payment is$858.33
Why is the initial interest-only payment and the final interest-only payment different?
Home construction loans allow you to borrow in set lump-sums that are based on the progress of your home’s construction, rather than borrowing the entire cost of construction upfront. The initial loan payments are for the money that you initially borrow to purchase the land. Over time, as construction progresses, you will be able to borrow more and more money to cover construction costs. This will increase the amount that you owe, in turn increasing the interest payments on the amount borrowed. Construction loans usually require only interest payments, with no principal repayments required until the end of your term.
Construction Loan Down Payment
Most lenders allow you to borrow 65% of the cost of purchasing the land and 75% of the building cost. That means you must come up with a 35% down payment to cover the land costs and a 25% down payment for building costs. Our construction loan down payment calculator assumes a 35% down payment is required.
Why doesn’t the construction loan cover all construction costs?
Most construction loan lenders will only allow you to borrow up to 75% of the total cost of construction. You will need to cover the remaining 25% of construction costs on your own, similar to a down payment. To find out more about construction loans, visit our construction loans page.
Estimating Your Total Cost of Construction
You can estimate your construction costs in the calculator using the size of the home that you are planning on building and the average construction cost per square foot for your area. You can find some average values for various Canadian cities below, or enter your own estimated total costs. Visit our How Much Does It Cost To Build A House page to find out more information on costs for construction, land, etc.
Average Home Building Costs in Canada (Per Square Foot) for 2024
| Home Type | Production Single-Family Home with Unfinished Basement (Stock Home Plans) |
|---|---|
| Vancouver | $190 - $320 |
| Calgary | $175 - $255 |
| Edmonton | $175 - $255 |
| Winnipeg | $170 - $245 |
| Toronto/GTA | $210 - $285 |
| Ottawa/Gatineau | $145 - $230 |
| Montreal | $140 - $200 |
| Halifax | $120 - $180 |
| St. John’s | $135 - $180 |
Newly-Built Home Costs in Canada
| City | Average Home Size | Cost of Single-Family Home |
|---|---|---|
| Toronto | 2,380 | $499,800 - $678,300 |
| Vancouver | 1,900 | $361,000 - $608,000 |
| Halifax | 1,530 | $183,600 - $275,400 |
How Is Total Interest Calculated for a Construction Loan?
Since the money that you borrow is spread out over your term, the total interest of a construction loan is based on when certain milestones are reached.
For example, your construction loan lender might allow you to borrow 35% of the total cost of construction once your home is 35% built, which is around when your foundation and roof is complete, with windows and doors installed. This first draw could take anywhere between three and six months. The earlier you reach the scheduled draws, the earlier you can borrow money. Borrowing money early will mean that you will be paying interest early, which will increase the total interest of your construction loan.
What Happens at the End of a Construction Loan’s Term?
Once the term is over, a construction loan can be transferred into a mortgage or repaid back in full. Some mortgage lenders offer construction mortgages, which may allow you to lock-in a mortgage rate for your future mortgage while your home is being built.
What Are Other Names for Construction Loans in Canada?
In Canada, construction loans are also commonly referred to by several other names, reflecting their purpose and structure. Some of these alternative names include:
Builder's Loans: Emphasizing the fact that these loans are used to finance the construction phase of a building project.
Self-Build Loans: Often used for projects where the borrower is taking on the role of the general contractor or is heavily involved in the construction process.
Construction Mortgages: Highlighting that these loans are a type of mortgage specifically for funding the construction of a property.
Interim Construction Financing: Referring to the temporary nature of the loan, which is designed to cover the construction period until permanent financing can be secured.
Progress Draw Mortgages: Indicating that the loan funds are released in stages (or draws) as the construction progresses and certain milestones are met.
Each of these terms can be used interchangeably to describe loans that provide the necessary funding to build residential or commercial properties, with repayment structures and terms tailored to the unique needs of the construction process.
Why Is Obtaining a Construction Loan More Difficult than a Traditional Mortgage?
Obtaining a construction loan is generally more difficult than obtaining a traditional mortgage for several reasons:
Increased Risk: Lenders consider Construction loans riskier because they fund a project that doesn't yet exist. Unlike a traditional mortgage, where the property already exists and can serve as collateral, a construction loan relies on the successful completion of the construction project.
Complexity and Uncertainty: Construction projects are inherently complex and subject to numerous uncertainties, such as delays, cost overruns, and potential issues with contractors or materials. These factors increase the risk for lenders.
Strict Qualification Criteria: Lenders typically require more stringent qualifications for construction loans, including a detailed construction plan, budget, and timeline. Borrowers must often provide documentation proving they have the experience or capability to manage the construction process or that they have hired qualified professionals to do so.
Higher Down Payments: Construction loans usually require higher down payments than traditional mortgages, often a minimum of 25% of the total project cost. This is to ensure that the borrower has a significant financial stake in the project, reducing the lender’s risk.
Progress Inspections and Draw Schedules: Funds from construction loans are disbursed in stages based on the construction progress. This necessitates regular inspections and verifications by the lender, adding layers of complexity and administrative burden.
Interest Rates and Fees: Construction loans typically come with higher interest rates and fees due to the higher risk and additional administrative work involved. This makes them more expensive for borrowers compared to traditional mortgages.
Permanent Financing Requirement: Often, a construction loan is a short-term loan that must be converted into a permanent mortgage upon completion of the construction. This adds an additional layer of complexity as borrowers must qualify for both the construction loan and the permanent mortgage.
Contingency Reserves: Lenders may require borrowers to set aside contingency reserves to cover unexpected costs that arise during construction. This further ensures that the project can be completed even if there are cost overruns.
These factors combined make construction loans more challenging to obtain, as lenders need to mitigate the higher risks associated with funding a project that is not yet built and ensuring that it will be completed successfully.
Disclaimer:
- Any analysis or commentary reflects the opinions of WOWA.ca analysts and should not be considered financial advice. Please consult a licensed professional before making any decisions.
- The calculators and content on this page are for general information only. WOWA does not guarantee the accuracy and is not responsible for any consequences of using the calculator.
- Financial institutions and brokerages may compensate us for connecting customers to them through payments for advertisements, clicks, and leads.
- Interest rates are sourced from financial institutions' websites or provided to us directly. Real estate data is sourced from the Canadian Real Estate Association (CREA) and regional boards' websites and documents.