The old mortgage had to leave before the new draws could start

Tearing down an existing home to build new on the same lot sounds like starting from a clean slate. It isn't. The existing home still carried a $145,000 mortgage, and no lender will advance new construction money against a title where a prior mortgage still sits — that mortgage had to be discharged first. Demolition itself cost $18,000, and that too had to be paid before there was anything left standing for construction to even begin on.

A family assuming their $220,000 of land value would function like $220,000 of equity, the way it would on a self-build on already-owned, debt-free land, would have sized the new construction mortgage wrong from the very first draw.

The real equity contribution here was never the land's gross value -- it was what remained after the discharge and the demolition were both paid.

37.1% and 39.9% sit comfortably inside CMHC's 39% GDS and 44% TDS maximums — but only because the family's income was strong enough to absorb a much larger insured mortgage than the raw land value would have suggested. The $57,000 effective equity, not the $220,000 gross land value, is what the premium band and the loan amount were actually sized against.

A mortgage agent licensed under Ontario's Mortgage Brokerages, Lenders and Administrators Act sequenced the discharge and demolition as first-stage costs, before any construction draw was even requested.

First, confirmed with the lender that the existing mortgage's discharge was a precondition to the first draw, not a step that could run in parallel with it. No construction lender will advance against a title with competing security still registered.

Second, budgeted the demolition cost as its own line item, paid from the family's own funds before construction began. Treating it as part of the construction budget itself would have understated how much cash the family actually needed upfront.

Third, sized the insured mortgage against the true $57,000 effective land equity, not the $220,000 gross land value. Getting this number right from the start avoided a shortfall being discovered mid-underwriting.

The build funded insured with $57,000 counted as the family's true equity contribution, GDS at 37.1% and TDS at 39.9%, both comfortably inside CMHC's maximums once the discharge and demolition were priced in from day one.

GDS and TDS maximums (39% / 44%) apply directly because this is an insured self-build; both ratios passed with room to spare once the mortgage was sized to the correct, smaller effective equity figure.

• 01A teardown's land value is not the same as usable equity. Any existing mortgage against the structure being demolished has to be discharged first, and demolition itself costs real money -- both come off the gross land value before any of it counts.
• 02No construction lender will advance draws against a title with a prior mortgage still registered. The discharge is a precondition to the first draw, not a step that can happen alongside it.
• 03Budget demolition as its own upfront cost, separate from the construction contract. Folding it into the general construction budget understates how much cash is needed before the build even starts.
• 04Size the mortgage against effective equity, not gross land value. The premium band, the loan amount, and the family's own cash requirement all depend on getting this smaller, real number right from the first conversation.
• 05The insured math doesn't change because the build is a teardown rather than a vacant-lot self-build. CMHC's premium bands price the same way regardless -- what differs is how much of the land's value survives to count as equity at all.