Construction Loan
Learn about construction loans in Canadian real estate — how they work, who uses them, and their role in development financing.
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
- Permanent Financing
- Loan-to-Value Ratio (LTV)
- Refinance
- Mortgage
- Draw Schedule
National average resale-price growth and housing-starts growth, smoothed over three months. The comparison illustrates the cycle; it does not establish how much a price change causes construction to change.
Trailing 12-month starts in centres of 50,000 or more remove the usual monthly seasonality. Ownership combines the homeowner and condominium categories; rental is shown separately.
Six-month averages of provincial starts, expressed at annual rates. The smoothing reduces the influence of individual apartment projects.
The same August benchmark compared with two different starting points. Three-month changes are not annualized.
Average sale prices show the difference in purchase costs across markets. They do not measure affordability relative to local incomes or construction costs.
Newfoundland and Labrador remains above its pre-pandemic sales pattern, but August activity was below last year. Historical lines retain their original release vintages.
Average and median describe different aspects of the same month’s transactions. Both are affected by the mix of homes sold.
Category averages compare different homes and locations; the gaps are not estimates of the cost to upgrade an otherwise identical property.
The five categories shown account for 5,000 of the board’s 5,057 sales. The remaining 57 transactions were in other housing categories.
Monthly observations are not seasonally adjusted. Active listings count properties available at month-end; they are not construction inventory.
Average and median prices share one dollar axis. These unadjusted transaction measures do not control for changes in the homes sold.
TRREB’s 416/905 categories compare the apartments sold in each area. The difference does not isolate a location premium for equivalent units.
5680 Oak Street in Vancouver and its surrounding context. (MCMP Architects)
Ground-level renderings of the tower proposed for 5680 Oak Street in Vancouver. (MCMP Architects)
