Construction Mortgages Explained: Building a Home in 2026

Building a home offers customization, long-term value, and the opportunity to create a space tailored to your needs. In 2026, construction mortgages remain a popular option for Canadians choosing to build rather than buy—but they work very differently from traditional mortgages. Understanding the process can help you avoid delays, cost overruns, and financing surprises.

What Is a Construction Mortgage?

A construction mortgage is designed to fund a home build in stages. Instead of receiving the full loan amount upfront, funds are released in draws as construction milestones are completed.

This structure protects both the lender and borrower during the build.

How Construction Mortgages Work in 2026

In 2026, most construction mortgages follow a progress-draw model:

• Initial land purchase or equity contribution

• Foundation completion

• Framing and lock-up stage

• Final completion

An inspection is typically required before each draw is released.

Down Payment and Equity Requirements

Construction mortgages usually require:

• 20%–30% equity or down payment, depending on lender

• Verified funds for cost overruns

• Ownership of the land (or financed separately)

Higher equity improves approval chances.

Interest Payments During Construction

During the build, borrowers typically pay:

• Interest-only payments on funds advanced

• Variable interest rates during construction

Once the home is complete, the mortgage often converts to a standard mortgage.

Qualification and Approval Criteria

Lenders assess:

• Credit score and income stability

• Detailed construction budget

• Builder credentials and contracts

• Contingency funds

Preparation and documentation are critical in 2026.

Fixed vs Variable Options After Completion

After construction, borrowers can choose:

• Fixed-rate mortgages for stability

• Variable-rate mortgages for flexibility

• Shorter terms to reassess rates later

Planning this transition early helps avoid surprises.

Risks and Considerations

Key risks include:

• Construction delays

• Cost overruns

• Builder performance issues

Maintaining contingency reserves and clear contracts is essential.

Tips for Building in 2026

To improve your experience:

• Choose an experienced, approved builder

• Budget conservatively

• Plan for rate changes post-construction

• Work with a mortgage professional experienced in construction financing

Final Thoughts

Construction mortgages in 2026 offer flexibility and opportunity—but they require careful planning and strong financial discipline. With the right preparation and professional guidance, building your own home can be a rewarding and financially sound choice.