Construction Loan

Learn about construction loans in Canadian real estate — how they work, who uses them, and their role in development financing.

Construction Loan

July 11, 2025


What is a Construction Loan?

A construction loan is a short-term, interim financing option used to fund the building or major renovation of a property, with funds disbursed in stages as work progresses.

Why Construction Loans Matter in Real Estate

In Canadian real estate development, construction loans provide liquidity during the build phase and are typically replaced with permanent financing at completion.



Key features:
  • Interest-only payments during construction
  • Draw schedule tied to inspection milestones
  • Higher risk, higher interest rates



Understanding construction loans helps builders, developers, and lenders manage financing risk and cash flow.

Example of a Construction Loan in Action

The developer secured a construction loan to fund the phased build of a 20-unit townhouse project, with draws released after inspections.

Key Takeaways

  • Funds new construction or major renovation
  • Short-term, interest-only during build
  • Replaced by permanent loan at completion
  • Disbursed in stages tied to progress
  • Involves higher risk and lender oversight

Related Terms

Additional Terms

Public Realm Improvements

Public realm improvements are enhancements to public spaces such as sidewalks, parks, plazas, and streetscapes, often funded or contributed by. more

Mortgagee in Possession

A mortgagee in possession is a lender who takes control of a property after borrower default, but before foreclosure or power of sale. The lender. more

Lease Surrender Agreement

A lease surrender agreement is a negotiated contract between a landlord and tenant that ends a lease before its scheduled expiration. Terms may. more

Green Infrastructure

Green infrastructure refers to natural or engineered systems that manage stormwater, reduce heat, and improve sustainability in developments.. more

Escrow Holdback

An escrow holdback is a portion of funds withheld at closing and held in escrow until specific conditions are met, such as completion of repairs,. more

Underused Housing Tax

The Underused Housing Tax (UHT) is a federal annual 1% tax on the value of vacant or underused residential property owned by non-resident,. more

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