Modules 02 and 04 introduced the distinction between draw mortgages and completion mortgages. This module looks specifically at the financing mechanics inside a draw structure, comparing progress advances — the staged model already covered — against a single completion advance, where no money moves until the home is fully finished and appraised as complete.
Both are technically "construction financing" in the sense that they fund a house being built, but they allocate risk and carrying cost very differently across the build period.
Under a progress-advance structure, the borrower pays interest only on the portion of the loan actually advanced at any point in time — typically interest-only during the construction phase, on a running balance that grows with each draw. Because most of the committed loan sits undrawn for much of the build, the actual interest cost during construction is usually far lower than it would be if the full loan amount accrued interest from day one.
This is one of the more counterintuitive parts of construction financing for a client to grasp: the total approved loan might be $600,000, but if only $150,000 has been drawn three months into a build, interest is being charged on $150,000, not $600,000. Borrowers who do not understand this sometimes overestimate their carrying costs during construction, which is worth walking through explicitly when setting expectations.
A single completion advance makes sense where someone other than the eventual mortgage borrower is financing the build — most commonly a production builder using its own construction financing or line of credit to build spec or pre-sold homes, with the buyer's mortgage only funding at the very end. From the buyer's perspective this is simpler: one advance, one closing, no draw schedule to manage personally.
It is not, however, a lower-risk structure in absolute terms — it simply moves the construction-period financing risk onto the builder rather than the eventual homeowner. If the builder's own financing runs into trouble mid-project, that is a builder-side problem the buyer's completion mortgage does not protect against, which is part of why builder financial strength and track record matter when a client is buying pre-construction.
When helping a client choose between financing their own build (progress advances) versus buying from a builder (completion advance), the honest comparison is not "which costs less" in isolation — it is who is taking on construction risk, and whether the client is equipped to manage it. A self-build with progress advances can be the cheaper route on paper, but it puts the borrower in the position of managing trades, timelines, inspections and cost-to-complete themselves. A completion-advance purchase from an established builder costs more in the price already baked into the home, but transfers that management burden entirely.
A client is surprised to learn their interest charges during construction are much lower than they expected, given a $600,000 approved construction loan. What is the most likely explanation?
This is the normal, expected mechanic of a progress-advance construction mortgage — interest accrues on the running drawn balance, not the total commitment, so early in a build the interest cost is naturally much lower than the full loan amount would suggest. It is not an error, not a rate change, and construction financing is not interest-free; the borrower is simply not seeing interest on money that has not been advanced to them yet.
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