Construction & Self-Build Mortgages in Ontario: How Progress-Draw Financing Actually Works
Buying land to build, tearing down and rebuilding, or adding a major addition isn’t financed with a normal mortgage — it’s a draw mortgage that releases money in stages, and the cash flow rules surprise almost everyone.
How do you finance building your own home or a tear-down rebuild in Ontario?
A custom build, tear-down rebuild, or major addition is financed with a construction (draw) mortgage: instead of one lump sum, the lender releases funds in stages (“draws”) as the build hits milestones, inspects the work before each draw, and you pay interest only on the money advanced so far during construction — then it converts to a normal amortizing mortgage once the home is finished. Source: RBC Royal Bank (2026) and CMHC (2026).
Sources: RBC Royal Bank (rbcroyalbank.com, 2026); CMHC (cmhc-schl.gc.ca, 2026); Ontario Construction Act, s. 22 (ontario.ca, 2026)
I’m Arthur Zhao. More of my GTA clients now buy a lot to build, or tear down an older house and rebuild, than a few years ago. The first thing they say is usually “the mortgage is basically the same, right?” It isn’t. A construction mortgage is a different product: money comes in stages, each stage is inspected before funding, you pay interest-only while you build, and a holdback comes off every draw. Miss how this works and you get squeezed at the foundation and framing stage. Here’s the plain version.
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First, know which model you’re in: draw vs completion
There are two models. A draw (progress-advance) mortgage releases money in stages as the build hits milestones; you pay interest only on what’s been drawn. Custom builds, tear-down rebuilds and smaller builders almost always use this. A completion mortgage is arranged in advance but funds only on possession — the builder carries construction costs and you pay no interest during the build; big production builders use this. GTA self-builds and rebuilds are almost always the draw model. Source: Sterling Homes / NerdWallet Canada (2026).
First draw: the land, capped around 65%
Foundation, framing, systems — each inspected
Final draw: only at 100% completion
⚠️Don’t underestimate the cash-flow gap between draws: the lender pays after each stage passes inspection, and the first draw is capped at ~65% of land value — so early costs (foundation, framing) come out of your own funds or a line of credit before you’re reimbursed. This gap is the classic construction-financing squeeze.
💡 Ontario’s Construction Act (s. 22) requires the owner to hold back 10% of every payment until lien rights expire (generally about 60 days after substantial performance). This protects unpaid trades — if you pay your general contractor the full draw without keeping the 10%, a subcontractor your GC never paid can still register a lien on your home, and you can end up paying twice. Source: Ontario Construction Act / Caravel Law (2026).
Down payment, CMHC and Tarion
Down payment: with CMHC insurance you can build with as little as 5% (5% on the first $500,000, 10% on the balance; home value under $1.5M), and CMHC does insure owner-built / owner-managed construction through progress advances (its full-service option validates up to four draws at no cost). Conventional, uninsured construction lenders typically want 20–25% down. Warranty: new homes built or sold in Ontario need an HCRA-licensed builder and Tarion enrollment; if you self-manage enough to make it a true “owner-built” home, Tarion/HCRA obligations don’t apply and warranties come only from the individual trades. Sources: CMHC (2026); Miller Thomson (2026).
Frequently Asked Questions
Do I need 20%+ down to build a home?
Not necessarily. With CMHC insurance you can build with as little as 5% (5% on the first $500,000, 10% on the balance) on homes under $1.5M; conventional, uninsured construction lenders typically want 20–25%. Sources: CMHC / RBC (2026).
Do I start making mortgage payments during construction?
During the build you make interest-only payments on the amount drawn so far — no principal. About a month after the home is finished, the loan converts to a normal mortgage and regular principal-and-interest payments begin. Source: RBC (2026).
What’s the 10% holdback and why does it matter to me?
Ontario’s Construction Act (s. 22) requires the owner to hold back 10% of each payment to protect unpaid trades. Skip it and an unpaid subcontractor can lien your home even after you’ve paid your general contractor in full — meaning you could pay twice. It’s generally released about 60 days after substantial performance. Source: Ontario Construction Act / Caravel Law (2026).
Do I need a licensed builder and Tarion for a self-build?
New homes built or sold in Ontario require an HCRA-licensed builder and Tarion enrollment — unless the project genuinely qualifies as “owner-built” (you have enough control over trades, decisions and materials), in which case Tarion/HCRA obligations don’t apply and warranties come only from the individual trades. Sources: HCRA / Tarion / Miller Thomson (2026).
How fast does the foundation have to go in?
On RBC’s product, the foundation must be complete within 180 days of the first draw, and the loan is structured around a one-year build; permit, weather or trade delays past a milestone can trigger re-appraisals or added cost. Other banks (TD, Scotiabank) use different draw counts and percentages — treat this as representative, not universal. Source: RBC (2026).
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