Mortgage Blog

Construction Mortgages - the difference between a draw mortgage and a completion mortgage

December 9, 2025 | Posted by: Patricia McKean - Cochrane and Airdrie Mortgage Broker

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

• 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. This is very common for rural and acreage builds and works closely with Alberta rural mortgage financing.
• 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:

• Foundation
• Lock-up
• Drywall
• 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, especially when paired with rural mortgage financing solutions.
• The lender takes on more risk, so qualifying requirements can be tighter, much like a detailed mortgage pre-approval.

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 per month

As more draws are taken, that number increases until the home is complete. If you want to play with different rate and payment scenarios, you can use Patricia’s Alberta mortgage calculators to estimate your carrying costs.

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. This is a very common scenario for clients using rural mortgage financing options.

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 per 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. Talking this through with an experienced broker can help you match the right structure with your budget and long term plans for your home, your equity, and possible future mortgage refinancing.

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 value at various stages of construction, similar to what you may see when arranging mortgage pre-approval or mortgage renewals.
• Loan to Value (LTV): The ratio of the mortgage amount to the property value, an important concept for refinancing and new builds.

FAQs

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, which is why it is so important to talk through the options with your broker before you sign your build contract or lock in your mortgage pre-approval.

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. That said, how strong your overall application is, including income, credit, and down payment, will matter for either option.

Are interest rates higher for draw mortgages?
Sometimes. Draw mortgages involve more administration, inspections, and risk, which can lead to slightly higher costs. It is always a good idea to compare options and review current Alberta mortgage lending rates when you are planning a build.

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. If you are considering an acreage, hobby farm, or rural build, Patricia’s rural mortgage financing expertise can help you understand which lenders support your type of build.

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. In both cases, it is important to keep your broker updated so they can work with the lender on any timelines and rate holds that may be affected.

If you are planning a build anywhere in Alberta and want help comparing draw versus completion mortgages for your situation, you can start with a quick mortgage pre-approval or reach out directly through Patricia’s contact page.

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