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Advantages & Disadvantages Of Construction Mortgages

Are you planning to build a house using a construction mortgage? If yes, you have probably made the right choice. However, obtaining a loan for construction projects involves a hectic process that may be both challenging and exciting. 

A construction mortgage, often known as a construction loan, is a short-term loan intended to finance new buildings or renovations by pay the costs associated with the building process, from the foundation to the finishes. This short-term loan differs from traditional mortgages since it only covers the cost during the construction process.

In this blog, we’ll go over the construction mortgage process, and its advantages and disadvantages for homeowners planning to build a property right from the scratch.

Advantages of Construction Mortgage

Here are some advantages of a construction mortgage or loan:

  • Construction loans allow you to build your home the way you desire.
  • Some construction loans can be converted into standard mortgages once the house has been finished.
  • You are only required to pay interest on the money you received, not the entire loan amount.
  • These loans can be used to pay for land, building supplies, permits, and contractor services.

Disadvantages of Construction Mortgage

There are numerous benefits to a construction mortgage, but there are also downsides as well.

  • Construction loan interest rates are typically higher than standard mortgage rates.
  • These loans typically require a greater down payment, usually around 20%.
  • Delays in building projects are common, which can increase expenses and generate issues with the lender.
  • Obtaining a construction loan can be difficult since it requires detailed blueprints and a reasonable budget.

How It Works?

Once the loan is approved, the lenders distribute the funds in steps known as drawdowns, which correspond to different stages of the building project’s timeline. This tiered funding guarantee that only necessary dollars are spent, hence keeping the budget on track.

Most construction loans require you to pay interest only during the construction phase, which is usually less than a year. In other words, a construction mortgage is a one-of-a-kind option to obtain the funds required to build your dream home. 


Before you begin, you should understand how the construction process works and the advantages and disadvantages of the loan type you have chosen. It can be difficult to grasp the concept of construction mortgages, especially if you are a newbie. 

Sandhu & Sran Mortgages is your local construction mortgage brokers in Abbotsford, committing to assisting potential homebuyers and eligible builders in getting approved for a construction mortgage in a quick and hassle-free way. With years of industry experience, we are here to make your dream home a reality by finding you the best mortgage deal at the lowest interest rate and flexible repayment terms.

Construct your dream home with the top mortgage consultants in Abbotsford and make your dreams a reality.