Construction Mortgage: Difference Between a Draw Mortgage and a Completion Mortgage

Building a home in communities like Airdrie, Cochrane, Calgary, Red Deer, Carstairs, Olds, and the surrounding counties can feel exciting and overwhelming at the same time. One of the first big decisions is choosing the right construction mortgage structure.

We’ve sat with many Alberta households who were unsure whether a draw mortgage or a completion mortgage made more sense for their build. You’re not alone—these are big decisions, and the terminology doesn’t always make things clear.

In this article

● What this means
● How each type works
● Case Study
● Glossary
● FAQs

What this means

When you build a home instead of buying an existing one, the lender needs a different setup to fund the process. A construction mortgage is simply a mortgage designed to release money in stages or all at once depending on the build structure.

Across Alberta, the two most common versions are:

• Draw mortgage: Funds are advanced to the builder in stages as the home is constructed.

• Completion mortgage: The full mortgage funds are released only when the home is 100% complete.

Your choice affects cash flow, inspections, deposits, interest costs, and even stress levels during construction.

How each type works

Draw Mortgage

A draw mortgage releases money to the builder at key milestones—often at three or four stages such as:

1. Foundation

2. Lock-up

3. Drywall

4. Completion

Each draw requires an inspection and an appraiser report to confirm the home is ready for the next advance.

What this means for you:

• You start paying interest during the build, but only on the funds advanced.

• Builders who work with rural clients or custom builds in places like Rocky View County or Mountain View County often prefer this structure.

• The lender takes on more risk, so qualifying requirements can be tighter.

Example cost during construction:
If the first draw is $150,000 at an interest-only rate of 6.5%, your monthly carrying cost during that stage is roughly:

• $150,000 × 6.5% = $9,750 annual interest

• $9,750 ÷ 12 ≈ $812/month

As more draws are taken, that number increases until the home is complete.

Completion Mortgage

A completion mortgage delays funding until the home is fully built and ready for occupancy.

This structure is common with large builders in communities like Airdrie, Cochrane, or Calgary, where the builder has enough financial capacity to cover the build on their own.

What this means for you:

• No mortgage payments during construction.

• You typically pay a deposit (often 5–10%), and the rest comes from the lender at possession.

• Appraisals may still be required, but far fewer inspections are involved.

When it fits best:

• First-time buyers building with major developers.

• Clients who want predictable cash flow during construction.

• Builds in larger centres where builders have standardized models.

Case Study

A family building on an acreage near Olds is comparing both approaches. Their builder offers either structure.

Scenario 1: Draw Mortgage

They need $600,000 total, released in four draws. The average outstanding balance during the build works out to $300,000 over 10 months.

Interest-only cost:

• $300,000 × 6.5% = $19,500 per year

• $19,500 ÷ 12 ≈ $1,625/month during construction

Total interest paid over 10 months:

• $1,625 × 10 = $16,250

Scenario 2: Completion Mortgage

They put down a 10% deposit ($60,000) and pay nothing else until completion.
Their carrying cost during construction is $0, but the builder includes an extra $12,000 in the purchase price to cover their own construction financing.

Outcome

• Draw mortgage: Higher monthly interest today but no builder markup.

• Completion mortgage: No monthly cost during the build but a higher final price.

Which is better? It depends on whether the family would rather deal with monthly carrying costs or accept a slightly higher total build price for simplicity.

Glossary

• Draw Mortgage: A construction loan that releases funds in stages as the home is built.

• Completion Mortgage: A mortgage where funds are released only once the home is finished.

• Inspection Report: A lender-required check confirming the stage of the build before releasing the next draw.

• Interest-Only Payments: Payments made during construction that cover interest but not principal.

• Builder Deposit: The amount you pay upfront when signing a build contract.

• Possession Date: The day you take ownership of the completed home.

• Appraisal: A professional assessment of the home’s value at various stages of construction.

• Loan-to-Value (LTV): The ratio of the mortgage amount to the property value.

FAQs

[FAQ] Can I switch from a draw mortgage to a completion mortgage mid-build?
Usually not. The builder and lender structure the project from the beginning.

[FAQ] Which option is easier to qualify for?
Completion mortgages are often simpler because the lender funds everything at the end, reducing their construction-stage risk.

[FAQ] Are interest rates higher for draw mortgages?
Sometimes. Draw mortgages involve more administration, inspections, and risk, which can lead to slightly higher costs.

[FAQ] Do rural builds require draw mortgages?
Not always, but many acreage and custom builders prefer them because it helps manage cash flow when materials and trades are farther from major centres.

[FAQ] What happens if the build is delayed?
With a draw mortgage, you may pay interest longer. With a completion mortgage, your possession date moves, but your financing structure remains the same.