The client
A couple near Fredericton owned their building lot outright, bought a year earlier, and were now ready to build — part of the steady share of Canadian housing starts that are self-builds rather than developer projects. Neither had financed a construction mortgage before, and both assumed it would work like a purchase: one number, one advance, done. It doesn’t, and the gap between that assumption and how a draw mortgage actually works is where this file needed the most explaining — a gap that matters more every year, given how much of new housing supply, per Canadian housing starts statistics and residential construction investment in Canada, now runs through exactly this kind of financing.
Land
$85,000, owned clear
Purchased a year earlier; NB’s flat 1% transfer tax of $850 already paid at that time
Build budget
$465,000
Fixed builder contract, on top of the land
Total project cost
$550,000
Land plus build budget
Income
$138,000/yr ($11,500/mo)
Household income supporting the completion mortgage
Financing
$415,000 completion mortgage
75% of total project cost; the balance is land equity and cash
Licensing
FCNB-licensed mortgage associate
New Brunswick’s Financial and Consumer Services Commission
The problem
A self-build has three genuinely different financing phases, and the clients had only ever pictured the last one. They knew what a regular mortgage looked like — one number, one closing — and assumed a build would work the same way. What they hadn’t seen was that draws happen progressively as construction milestones are hit and inspected, that interest during the build is charged only on the money actually advanced so far rather than the full committed amount, and that at completion the file converts into a standard mortgage that has to be qualified on its own terms.
None of that is unusual for a construction file — but walking in without understanding it is how self-build clients get blindsided mid-project by costs they never budgeted for.
The numbers
Three phases, three numbers: what the land already cost, what the build phase costs while it’s underway, and what the completion mortgage costs once it converts.
| The project, in full | Amount |
|---|---|
| Land (owned clear) | $85,000 |
| Build budget | $465,000 |
| Total project cost | $550,000 |
New Brunswick charges a flat 1% Real Property Transfer Tax on the greater of sale price or assessed value. On the $85,000 land, that came to $850 — paid a year earlier, at the land purchase, and not something owed again at either the draw stage or the completion conversion.
Phase 1 — the build-period interest
During construction, interest is charged only on the amount actually drawn to date, not on the full $465,000 build budget, and each draw sits behind the same construction holdback a builder’s own contract would carry. On an illustrative average drawn balance of $200,000 across the build:
| Build-phase interest (illustrative) | Figure |
|---|---|
| Average drawn balance during construction | $200,000 |
| Build-phase rate, interest-only (illustrative) | 6.5% |
| Monthly interest-only payment | $1,083 |
| Total interest over the 9-month build | $9,747 |
Phase 2 — the completion conversion
At completion, the build converts into a standard mortgage of $415,000 — 75% of the $550,000 total project cost, with the land equity and cash covering the rest.
| Completion mortgage | Figure |
|---|---|
| Completion mortgage | $415,000 |
| Contract rate (illustrative, not a quote) | 4.59% |
| Minimum qualifying rate | 6.59% |
| Monthly payment at the qualifying rate | $2,802 |
| GDS at conversion | Monthly |
|---|---|
| P&I at the qualifying rate | $2,802 |
| Property tax | $290 |
| Heat (lender-standard estimate) | $150 |
| Housing costs $3,242 ÷ income $11,500 → GDS 28.2% | ✓ |
The solution
A mortgage associate licensed under FCNB walked the clients through all three phases before either of them signed anything.
First, mapped a draw schedule tied to the builder’s own milestones. Exactly which percentages release at which inspection point is set by each lender’s own policy — it varies, and was confirmed in writing rather than assumed, including any statutory construction holdback the province requires before a draw releases.
Second, budgeted an interest reserve for the build phase. Rather than let the clients discover build-phase interest as a surprise bill on top of their existing living costs, the illustrative $9,747 build-phase interest figure was set aside up front as a planning number.
Third, held the completion terms firm from the start. The clients knew the $415,000 completion mortgage’s qualifying math — and that it would clear GDS comfortably — before the first draw was ever released, so there was no re-qualification shock at the finish line.
The outcome
The build completed and converted into the $415,000 standard mortgage at 28.2% GDS. The three-phase cost of the whole project was visible to the clients from the very first conversation: the $850 land transfer tax already sunk a year earlier, the build-phase interest budgeted in advance, and the completion payment known before they poured a foundation.
What to take from this file
- 01A self-build has three distinct financing phases, not one. Land, the draw period, and the completion conversion each work differently, and clients need to see all three before they commit to anything.
- 02Build-phase interest is charged only on what’s actually drawn, not the full committed mortgage. The real build-phase cost is usually far smaller than the completion mortgage amount alone would suggest.
- 03Land equity counts toward the required equity in the project. Owning the land clear reduced how much new cash this file needed to bring to the draw stage.
- 04Land transfer tax is a one-time event at the land purchase, not something owed again later. This file’s $850 NB transfer tax was paid a full year before construction financing was even discussed.
- 05Draw schedules and inspection points are lender policy, not a fixed rule. Get the actual schedule from the lender in writing before setting any client expectations.
Sources
Every regulatory figure in this file traces to one of these primary sources. Client details and anything that varies by lender are illustrative, as flagged below.
- ▸OSFI — Minimum qualifying rate for uninsured mortgages — the minimum qualifying rate — greater of contract rate + 2% or 5.25%.
- ▸CMHC — CMHC Reviews Underwriting Criteria — GDS 39% / TDS 44% maximums and the 600 credit-score floor for insured files.
- ▸Real Property Transfer Tax Act, S.N.B. (via laws.gnb.ca) — New Brunswick's flat 1% real property transfer tax.
- ▸Provincial/territorial mortgage-broker legislation fetched directly (bclaws.gov.bc.ca, legisquebec.gouv.qc.ca, fcaa.gov.sk.ca, web2.gov.mb.ca, nslegislature.ca, assembly.nl.ca) plus FCNB's own site for NB and CanLII's index for PE — see notes for per-province method — provincial mortgage regulators and licence titles.
Illustrative in this file — lender-specific, not rules:
- ▸Draw percentages and inspection points — every lender publishes its own draw schedule.
- ▸6.5% build-phase rate and $200,000 average drawn balance — illustrative project math, not a specific lender’s terms.
Authority & provenance
How this case file was built
We publish the origin, the verification method and the reviewer for every case file, so you can judge how far to trust it before you rely on it with a client.
Where it comes from
Derived from files handled by Treadstone’s fulfillment desk and from scenarios contributed by partner brokerages. Names, employers, exact amounts and dates are changed so no client or file is identifiable.
Provenance: Composite — a pattern seen repeatedly on fulfilled files, not a single transaction.
What is verified
Every regulatory figure traces to a primary source listed above and was checked against it on the date shown. The arithmetic is recomputed by machine on every rebuild.
Anything that varies by lender is labelled illustrative rather than stated as a rule.
Who reviewed it
Reviewed for Canadian regulatory accuracy before publication, and re-checked whenever a cited rule changes.
Reviewed by: Nicholas Parson, Treadstone Associates — reviews every case file before publication.
This case file is professional reference material for licensed mortgage professionals. It is not advice to a borrower, and it is not a lender commitment. Insurer rules, qualifying rates and provincial taxes change — confirm the current position with the insurer, regulator or lender before you rely on any figure here in a live file.