Some builders, buyers, and property owners seek funds for construction. They may want to complete a project and shop around for financing, trying to figure out how it works. A second category is formed by persons who have done some research and have specific questions in need of an answer. A third category is made up of persons who have secured financing already. In either case, there are different factors to take into consideration. These are timing and management of cash flow which should be factored in before applying for financing. Every construction project has impact on the cash flow of service providers, suppliers, builders, borrowers, and even lending institutions. It is a good idea to outline accurate budgets, completion stages, payment timelines, and disbursement requirements.
Similar to other types of financing, construction loans in Toronto have to be secured by some asset. A second mortgage is an option if the equity in the property is not enough to pay the first draw. Over the next stages of construction, the property’s value will increase, and more funding may be available at specified stages of completion.
The milestones or points of completion are set at the beginning of the construction project, reflecting the timeframe within which the building’s fair value will increase. Speaking of residential properties, the completion of the basement and foundation are considered the first points of completion. The enclosure of the roof and walls and the framing of the building will be the next milestone
With some lenders, Toronto construction loans have the following features. Funds are extended when required, and the principal is to be repaid once the project is complete. This takes about eighteen months from the start of the construction project. Upon project completion, there is an option to convert the loan into another fixed rate product. Interest that was accrued during the different construction phases may be capitalized into the loan amount.
One important factor is the benefits of taking out a construction loan. With funding available when required, borrowers save on interest. Moreover, cash flow management is easier over the loan’s term. This makes it easier to meet unexpected expenses. Given the competitive interest rates and the option to switch to another product, the borrower gets an attractive financial package.
Naturally, there are different types of loans in Ontario. They are either part of a so called combination loan or are in the form of a stand alone bridge loan, offered for the period of construction only. The combination loan starts out as a construction loan, then rolling in into a long term mortgage loan, which is pre-approved.
Finally, it should be noted that as the complexity and size of the project increase, so do the lending requirements of financial institutions. Want to know more about payday loans in Toronto.
