A construction mortgage does not hand you a pile of money on closing day. It reimburses progress you have already made, in stages, after somebody the lender hired drives out to your lot and confirms the work exists. That single difference is what makes financing a custom build feel unfamiliar to people who have bought a resale house before, and it is why “just get a mortgage” undersells what you are about to arrange.
There is a second surprise underneath it. Ontario law requires a 10% holdback on every payment for construction work, which means even an approved draw does not fully land in your builder’s hands when it is released.
So the useful way to think about paying for a build is not one loan. It is four separate money layers, each with its own lender conversation, its own rules, and its own timing.
The four money layers
Most financing confusion comes from treating these as one thing. They aren’t.
- The land. Financing the lot itself, which is underwritten as its own risk if you buy before you build.
- The construction (draw) mortgage. The facility that funds the build, released in inspected stages rather than in one advance.
- The statutory holdback. A 10% slice of every certified payment that Ontario law requires be held back, sitting between the lender’s draw and your builder’s bank account.
- The take-out mortgage. The permanent, amortizing mortgage the construction balance converts into once the house is finished.
Our cost post for Burlington builds breaks down what you owe on a custom home. This post is about the other half of that question: how and when the money actually moves. And where our end-to-end process post treats financing as one phase inside the full build sequence, this is the layer-by-layer version of just the money.
Layer one: the land is its own loan
Lenders do not view a bare lot the way they view a finished house. A house is collateral somebody else would readily buy. Raw land is not, especially unserviced land with no water, sewer, or hydro at the property line. So land and lot loans generally come with higher down payments, higher rates, and shorter terms than a home mortgage.
How much higher is the honest gap in this post. No bank or government body publishes a land-loan LTV or rate table for Ontario that we could point you to. Aggregator sources such as WOWA’s guide to land mortgages in Canada put down payments at roughly 20% to 30% for vacant land in urban areas, rising to as much as 50% for raw land. Treat that as a rough shape rather than a figure to budget from. It moves with the lender, the lot, the servicing, and how close you actually are to building.
The alternative is timing. Some owners skip separate land financing by rolling the lot into the construction mortgage once the build is planned and priced, which works when you are buying and building on a compressed schedule. Whether that is available to you depends on the lender and on where you are in the process, which is exactly the sort of thing to raise before you make an offer on a lot in Burlington, Oakville, or Mississauga, not after.
Layer two: how a progress-draw mortgage actually works
Here is the mechanic. Instead of one advance at closing, the lender commits a total facility and then releases it in pieces, each piece tied to a construction stage that has been completed and verified. Forbes Advisor Canada’s guide to construction mortgages describes the general shape: funds arrive in stages called draws, and an inspector assesses the progress of the build before each one is paid out. How many draws there are, and what triggers each, is set by the lender.
What that looks like at a named lender is instructive, as long as you read it as that lender’s product and nothing more. RBC’s published construction mortgage structure is a five-stage example: an initial draw of up to 65% of the appraised lot value, then draws at foundation and backfill, at framing with roof and doors and windows in place, at electrical, plumbing, insulation and exterior, and a final draw at completion. RBC also requires interest-only payments monthly during construction, and requires the foundation to be finished within 180 days of the first draw. Scotiabank’s published progress-draw program runs differently: up to five advances, construction to be complete within 15 months of the first advance, and a variable-rate closed term with interest-only payments that move with Scotiabank Prime.
Two lenders, two structures, neither of them law. Those are each bank’s current published terms, and both change. Confirm the specifics directly with any lender you are actually talking to.
The interest mechanic is the part worth internalizing, because it is where budgets get surprised. You pay interest on what you have drawn, not on the full facility. A build with $150,000 released is carrying interest on $150,000, not on the $900,000 the lender committed. So your carrying cost starts small and climbs with every draw, and the heaviest months are the last ones, right when finish-stage invoices are also landing. People who budget a flat monthly financing number for the whole build get this backwards.
One more thing lenders reward: a fixed-price contract with a licensed builder is generally the cleanest structure to underwrite, because the lender can see what the money buys and who is accountable for delivering it. That is a documented lender preference, not a rule, and it does not guarantee anyone approval.
The draw clock: the rhythm your cash actually runs on
Our process post describes the build clock, the four phases a project moves through from design to warranty. Running alongside it, on its own beat, is a different cycle we call the draw clock. The build clock tracks construction. The draw clock tracks cash, and it does not turn just because work got done.
One turn of it looks like this:
- Your builder completes a stage of work.
- A draw request goes to the lender with proof the stage is done.
- The lender orders a third-party inspection or appraisal to verify it.
- The lender releases funds for that stage only, less the holdback.
- Interest recalculates on the new, higher outstanding balance.
Then it starts again at the next stage. Nothing in step 3 moves faster because you would like it to, and no funds arrive early because an invoice did. Work leads, money follows, and the gap between them is real. That gap is why your builder carries trade costs between draws, and why a build financed on draws needs some working capital in the system rather than a perfectly timed reimbursement schedule.
That is also, plainly, where a builder’s job touches your financing. We coordinate the stage documentation and inspection access that keeps the draw clock turning. We do not arrange the loan.
Layer three: the 10% holdback most explainers skip
This is the Ontario-specific piece that national mortgage content almost always misses, and it changes how much money your builder actually receives.
Section 22 of Ontario’s Construction Act requires each payer on a construction contract to hold back 10% of the price of the services or materials as they are actually supplied, until all liens that may be claimed against the holdback have expired. The Council of Ontario Construction Associations’ fact sheet on basic holdbacks, which quotes section 22 directly, is a readable summary of the rule. That obligation sits with the payer on the contract, and lenders build their draw structures around it. RBC’s own product page notes that a portion of each draw is held back for a period of time according to provincial construction-lien requirements.
The practical effect: an approved $100,000 draw is not $100,000 arriving at your builder. Ten percent stays back. That is not a lender being difficult, it is statutory protection for the subtrades and suppliers who could otherwise register a lien against your property if they went unpaid. It protects your title as much as their invoice.
For a typical single-family build running under a year, the holdback releases once all liens that could be claimed have expired. COCA describes that as 61 days after the earlier of completion, abandonment or termination, or after publication of a certificate of substantial performance, provided no lien has been preserved in the meantime.
For longer projects, one thing changed recently. Amendments to the Construction Act took effect on January 1, 2026 that make annual release of accrued basic holdback mandatory, on a notice published in the Act’s new Form 6. Because the obligation triggers on the anniversary of the contract, it only bites on projects that run past their first year. That matters far more to multi-year and larger commercial work than to a single-family custom home, but if your build is going to run long, it is a question worth asking.
Everything in this section is general mechanics, not legal advice. Lien timing turns on dates and facts specific to your contract, and it is a real estate lawyer’s call, not a builder’s and not a blog post’s.
Self-build or builder contract: lenders treat them differently
Acting as your own general contractor is possible to finance, and it is harder. Lenders generally want a licensed builder on a fixed-price contract with warranty coverage behind it. Take that away and the underwriting tightens: more documentation, more contingency, larger cash reserves, fewer lenders willing to look at it at all.
CMHC confirms the distinction in its own rules. For owner-built homes where a warranty program is not available or applicable, CMHC requires either an occupancy permit or a third-party report from a qualified professional such as an inspector, architect, or engineer, confirming the home complies with bylaws and regulations. A contracted build with warranty enrolment does not need that substitute, because the warranty already answers the question.
The licensing and warranty side of this (HCRA licences, Tarion enrolment, and why construction cannot legally start without both) is covered in our process post, so we won’t repeat it here. If you are interviewing builders and want to know what a fixed-price contract should actually contain before a lender sees it, what to ask before hiring a custom home builder is the more useful read.
CMHC-insured construction financing, and what it doesn’t do
CMHC insurance does not lend you money and does not approve you. It insures the lender’s risk, which can open up higher loan-to-value than a conventional facility. You still have to qualify with the lender, and no program guarantees a rate or an approval.
As of 2026, CMHC’s Improvement program can insure up to 95% of the as-improved value for an owner-occupied build of one to two units, up to 90% for three to four units, and up to 80% for two to four unit rental properties, subject to a homeowner loan value cap under $1,500,000 and a standard 25-year amortization (30 years is possible through CMHC Home Start). New-home warranty enrolment is required where available.
The advance structure is where it intersects with everything above. CMHC uses a single advance where improvement costs are 10% or less of the as-improved value, and progress advances above that threshold. A full custom build clears that threshold every time, so progress advances are the path. CMHC also requires new construction financing to be approved before or very early in construction, and requires the lender to control the entire building during construction. That first requirement is the one that catches people: it is not something you apply for halfway through framing.
CMHC’s percentages, caps, and amortization limits change on CMHC’s own schedule, and the program page carries no visible “as of” date. Every figure in this section is written as of 2026. Confirm the current terms directly with CMHC or a mortgage professional before you build a budget on them.
Layer four: the conversion to a permanent mortgage
At substantial completion, the construction facility stops being a construction facility. The lender orders a final appraisal, confirms the loan-to-value against the finished home’s value, and rolls the outstanding balance into a standard amortizing mortgage. Scotiabank, for example, describes its progress-draw mortgage converting or renewing into a regular Scotiabank mortgage at completion.
Whether that conversion is automatic or requires a fresh application, and on what timing and terms, varies by lender. It is a question to ask at the front end, when you are choosing the construction lender, rather than at the back end when you have a finished house and no room to negotiate.
What to actually do with this
None of this is financial advice, and EverOak is a builder, not a lender, a broker, or a mortgage advisor. What we can tell you is what the informed clients tend to have done before they sign anything:
- Treat land and construction as two conversations if you are buying a lot ahead of building, and ask early whether the lot can be rolled into the construction facility later.
- Get pre-approval before signing a builder contract, not after. This is doubly true on CMHC-insured financing, where approval has to precede construction.
- Budget carrying cost as a rising curve, not a flat monthly number. Interest tracks the drawn balance, so the last months cost the most.
- Get the draw schedule and holdback handling in writing from any lender you are considering, including the number of draws, what triggers each one, who orders inspections, and how long release takes.
- Work with a mortgage broker who does construction financing regularly. Not every lender offers draw mortgages, and the ones that do differ enough that this is not a general-mortgage conversation. A real estate lawyer belongs in the room too, for the land purchase and for lien and holdback timing.
Our part starts once your financing is your own: keeping the stage documentation, inspection access, and draw paperwork moving so the draw clock turns on schedule instead of stalling on a missing form. If you are planning a custom build in Burlington, Oakville, or Mississauga and want to know what your lender will need from the construction side, talk to us alongside your mortgage professional, not instead of them.
