Hustle & GritWatch us on YouTube
A construction (draw) mortgage is financing advanced in stages, or “draws,” as a new home or major renovation project reaches agreed construction milestones, rather than as a single lump sum at closing.
Instead of releasing the full loan amount up front, the lender advances funds in instalments tied to progress — commonly stages like foundation, framing, enclosure, and final completion. Before releasing each draw, the lender typically requires a progress inspection or appraisal confirming the corresponding work is actually done.
During the build, the borrower generally pays interest only on the funds drawn to date, not on the full approved amount. This structure is also used for a major purchase plus improvements project; once construction wraps up, a draw mortgage typically converts into a standard amortizing mortgage.
Progress inspections drive each draw: lenders release funds only after a progress inspection or appraisal confirms the relevant construction stage is complete.
Interest on drawn funds only: borrowers typically pay interest solely on the amount advanced to date during construction, not the full approved loan.
Used for builds and major renovations: available for owner-builds, contractor-built new homes, and large renovation or purchase-plus-improvements projects.
Converts to a standard mortgage: once construction is complete, the draw mortgage generally rolls into an ordinary amortizing mortgage.
Definitions reflect Canadian federal and provincial rules as of the “Updated” date above. Not advice for any specific file.
Every term a Canadian mortgage professional needs — defined, sourced, and kept current.
See how Treadstone can scale your brokerage — a free call, no commitment.