GLOSSARY

Canadian Financial, Real Estate and Mortgage Glossary

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50% - Moderately

Construction Loan


Synonyms:building draw, building loan, construction draw
Filed Under: financial-banking, mortgages, real-estate
Tags: banking, mortgage, realty
 

Definition of construction loan

construction loan
1. A short-term interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work advances towards completion.

Related Terms and Acronyms:

  • building permit (BPmt)   Authorization by a local government to construct or repair a structure.
  • condominium (condo)   A structure of two or more housing units. The interior space of the units are individually owned. The balance of the property (land, building and other amenities) is owned in common by the owners of the individual units.
  • cost-plus contract   An agreement in which a construction contractor receives a fee based on a percentage of all costs paid for labour and materials.
  • draw mortgage (DM)   A periodic payment made to a construction contractor or subcontractor as work progresses. A draw is part of a construction mortgage.
      ➥  See Progress Advance Mortgage (PAM).
  • end loan   The final mortgage on a property, as opposed to a construction or other interim loan.
  • environmental impact statement (EIS)   A government-required evaluation of how construction will affect the environment surrounding a site.
  • holdback   A dollar amount that is withheld by the lender during construction of a home to ensure construction is satisfactory at every stage. The amount of hold-back is typically equivalent to the estimated cost to complete the construction.
  • interim financing   The availability of funds on a daily basis to assist a developer with financing for a construction project between advances made by the lender of the construction loan.
  • land draw   A construction loan backed by the value of the land.
  • takeout mortgage loan   A long term mortgage loan that is advanced to borrower on completion of construction or in compliance with any other conditions in the loan commitment. The funds are normally used to pay off or take out the construction lender.

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