As a developer, you will be well aware of the difference between a construction loan and a commercial mortgage. Your construction loan is designed to cover the cost of your build from start to finish, providing funding to purchase materials and pay contractors. A commercial mortgage, meanwhile, is your long-term financing solution post completion.
When to start thinking about converting your construction loan
Since you need to pay off your construction loan once your project is complete, it’s important that you plan ahead for the conversion of your loan to a commercial term mortgage (unless you plan to pay off your loan with cash or sell the project).
While lenders recommend starting discussions about long-term financing options six months prior to completion, the earlier you get started the better. In fact, initiating discussions with your lender twelve months prior to completion is advisable in the current climate.
Factors to consider when choosing a financing partner
Several lenders in Canada offer construction loans and commercial term mortgages, but there are several factors to consider when deciding who to partner with and what kind of product to choose.
Speed of execution |
Speed of executionIn all business – particularly the construction business – time is money. And if you have a project that is ready– or that has already started – you don’t want your lender holding you back and creating a cash flow constraint for you if they are slow to deliver. A lender that executes quickly may be more valuable than a lender that offers the lowest rate. |
Your maximum exposure |
Your maximum exposureIf you have multiple builds going on at one time, your lender may have a maximum risk exposure. If you have more than one project on the go, consider who your preferred lenders are, ensure they understand your financing needs and become familiar with what constraints they might have. |
Total amount of financing required |
Total amount of financing requiredBefore you approach your lender, you’ll need to determine how much financing you’ll need. Having your numbers in order will help potential lenders understand what you’re looking for, and quickly determine what they can offer you. As you calculate your numbers, consider:
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The affordability, sustainability and accessibility of your building |
The affordability, sustainability and accessibility of your buildingOne of the newest and most innovative construction financing solutions available today is CMHC’s MLI Select multi-unit mortgage loan insurance product. Through MLI Select, developers can access reduced premiums, lower cost financing, lower debt service thresholds and longer amortization periods based on the project’s level of commitment to affordability, accessibility, and/or energy efficiency. The more committed you are to social and environmental outcomes, the better the incentives available.
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How MCAP’s Commercial Mortgages Team can help
At MCAP, our Commercial Mortgages Team understands the construction process and the financing needs that come with every step of your project. Take a look at our Vertical Construction Loans if you’re ready to get your project started.
Throughout the lifetime of your project, we remain committed to being flexible and supportive, helping you realize your plans and operate your business effectively. Because the needs of commercial developers are diverse and dependent on the size, scope and location of the project, we offer a range of both conventional and insured financial solutions. We will create financing programs to meet your specific requirements while ensuring quick execution.
Have questions?
Contact our Commercial Mortgages Team to see how we can assist and guide you through the process.
