Canada new construction mortgage guide: pre-sale, progress draws, and closing risks
Financing a new construction home in Canada works differently from a resale purchase. Pre-sale condos require a small deposit, extended closing timelines, and conversion from a builder mortgage to your own financing. Freehold new builds use progress draw mortgages disbursed as construction milestones are reached. This guide explains every step, the risks, and how to protect yourself.
Buying a new construction home in Canada involves timelines, taxes, and mortgage structures that resale purchases don't. Getting pre-sale financing wrong — especially if rates rise between signing and closing — can turn a dream purchase into a serious financial strain. Here's how the process works and what to watch for.
Pre-sale condo vs new freehold: how the mortgage process differs
| Factor | Pre-sale condo | New freehold (progress draw) |
|---|---|---|
| Timeline to possession | 2–5 years from signing | 6–18 months |
| Deposit structure | 5–25% in stages before closing | Small deposit; balance at occupancy |
| Mortgage commitment | Obtained at closing (current rates) | Progress draw advances in stages |
| Rate risk | High — rate unknown until closing year | Moderate — rate hold available closer to completion |
| 30-year amortization (insured) | Yes — new construction eligible | Yes — new construction eligible |
| HST/GST | Subject to HST; rebate if owner-occupant | Same — new housing rebate applies |
| Warranty | Provincial new home warranty | Tarion (ON) / HPO (BC) / provincial equivalent |
Step-by-step: getting a new construction mortgage
- 1Understand whether you're buying pre-sale or new freehold
Pre-sale condo: you sign a purchase agreement and pay a deposit (typically 5–25% in stages) before the building is complete — sometimes 3–5 years before closing. New freehold: a builder constructs your home on a specific lot and you take possession when it's finished, typically within 6–18 months. The mortgage process differs significantly: pre-sale condos involve a long-dated purchase contract and a mortgage commitment at closing; freehold new builds often use a progress draw mortgage disbursed in stages.
- 2Get pre-approved and understand the time-to-close risk
For pre-sale condos, your mortgage pre-approval at signing is not binding for closing years later. You need to re-qualify at actual closing at the then-current rates and with your then-current income/debt profile. If rates rise significantly between signing and closing, your qualifying payment may be much higher than anticipated. Freehold new builds: get a mortgage pre-approval, but understand that construction delays (common) push your closing date — your rate hold may expire before the home is ready.
- 3Review the purchase agreement for assignment and assignment sale tax
A pre-sale condo purchase agreement may or may not allow assignment — selling your interest before closing to another buyer. Since Budget 2022, assignment sales of new residential properties are subject to GST/HST in Canada. Read the agreement carefully for: assignment clauses and fees, permitted delay language (builders can delay closing with limited notice), deposit protection in case of builder insolvency, and what happens to your deposit if the project is cancelled. Have a real estate lawyer review the contract before signing.
- 4Understand CMHC insurance for new construction
New construction purchases are eligible for CMHC-insured mortgages with as little as 5% down (under $500k) or 10% (for the portion $500k–$999,999) — same as resale. The August 2024 federal change also extended 30-year amortization to new construction buyers (not just first-time buyers), making new construction one of the most amortization-flexible categories. CMHC also insures progress draw mortgages for freehold construction through their MLI Select program for builders.
- 5Secure a rate hold and understand conversion risk
For pre-sale condos, lenders cannot hold a rate for 3–5 years. You will be obtaining a new mortgage at closing at then-current rates. Some builders offer rate guarantee programs through their preferred lender — read the fine print carefully, as these often have higher base rates or require use of the builder's lender. For freehold construction, get a rate hold for the expected completion date — most lenders offer 120–180 day holds, extendable for delays.
- 6Plan for closing costs unique to new construction
New construction in Canada carries unique closing costs beyond standard resale: (1) HST/GST on the purchase price — new homes are subject to HST; if buying as a primary residence, you may qualify for the New Housing Rebate (max ~$24,000 federal + provincial portion); (2) Development levies and tarion enrollment fees (Ontario); (3) Meter installation and utility hookup fees; (4) Adjustments for property taxes, common element expenses, and occupancy period costs; (5) Potential PDI (Pre-Delivery Inspection) deficiency holdbacks. Budget 1.5–4% of the purchase price for new construction closing costs beyond your down payment.
New construction closing costs: what to budget
| Cost item | Typical range | Notes |
|---|---|---|
| HST/GST (new build) | 5–13% of purchase price | Federal + provincial; New Housing Rebate offsets for owner-occupant |
| New Housing Rebate (federal) | Up to −$6,300 | Phased out above $450k; builder credits at closing |
| Ontario new home rebate | Up to −$24,000 | Provincial component (ON only) |
| Land transfer tax (ON/BC) | 0.5–2.5% of purchase price | FTB exemption may apply |
| Tarion/HPO enrollment | $500–$2,000 | Mandatory new home warranty registration |
| Development levies adjustment | Varies widely | Builder may pass through municipal levies at closing |
| Utility hookups / meters | $500–$3,000 | Especially in new subdivisions |
| Legal fees | $1,500–$3,000 | Higher for complex pre-sale assignments |
External references
- CRA — GST/HST New Housing Rebate guide
- Tarion — New home warranty coverage (Ontario)
- BC Homeowner Protection Office — New home warranty (BC)
- Finance Canada — 30-year amortization for new construction
- CMHC — Mortgage loan insurance for new construction
Common questions
How does a progress draw mortgage work in Canada?
A progress draw mortgage (also called a construction mortgage) disburses funds in stages as construction milestones are reached — rather than in a single lump sum at closing. Typical draws: (1) foundation complete; (2) framing complete; (3) mechanical/electrical rough-in complete; (4) drywall complete; (5) occupancy permit issued. Each draw requires a lender inspection. You pay interest only on the outstanding balance at each stage — so your carrying costs grow as more of the loan is advanced. At full disbursement, the construction mortgage converts to a standard amortizing mortgage. See current new construction mortgage options at CMHC's housing industry resources.
What is the GST/HST new housing rebate for new construction?
New homes are subject to full HST in Ontario (13%) or GST (5%) in other provinces. The federal New Housing Rebate refunds up to 36% of the federal GST portion (max $6,300) for homes valued up to $450,000, with a partial rebate phasing out to $0 at $450,000. In Ontario, there is also a provincial new housing rebate worth up to $24,000. If buying a new home as your primary residence, the builder typically credits this rebate at closing and you assign your right to claim it to them — confirm this in your purchase agreement. For pre-sale condos used as rental investment, the rebate is not available to you (only to end-user owner-occupants). Full rules at CRA New Housing Rebate guide.
What is the Tarion warranty for new homes in Ontario?
Tarion (Tarion Warranty Corporation) is Ontario's new home warranty program, mandatory for all new freehold homes and condos built by registered Ontario builders. Coverage: (1) 1-year workmanship and materials warranty; (2) 2-year mechanical systems (plumbing, electrical, HVAC) warranty; (3) 7-year major structural defect warranty. Buyers must complete a Pre-Delivery Inspection (PDI) and submit a 30-day and year-end warranty forms to document defects. If the builder doesn't fix covered items, Tarion steps in. For pre-sale condos, there is a 1-year condo warranty from occupancy. Other provinces have equivalent programs (e.g., BC's New Home Warranty under Homeowner Protection Office). Details at Tarion warranty coverage.
Can I get a 30-year amortization on a new construction mortgage in Canada?
Yes — effective August 1, 2024, the federal government extended 30-year amortization on insured mortgages to buyers of new construction properties (not just first-time buyers). This means any buyer purchasing a newly constructed property with less than 20% down can use a 30-year amortization — reducing the monthly payment relative to the previous 25-year maximum. Example on a $600,000 insured mortgage at 5.5%: 25-year amortization = ~$3,680/month; 30-year = ~$3,400/month — a savings of ~$280/month. The new construction designation must be confirmed by the lender (typically requiring evidence the property has not been previously occupied). See the Finance Canada mortgage reform announcement.
What happens if a pre-sale condo project is cancelled?
Pre-sale condo project cancellations happen when developers cannot secure financing, don't meet pre-sale thresholds, or face cost overruns that make the project unviable. When a project is cancelled: your deposits should be returned with interest under provincial legislation — in Ontario, the Condominium Act requires deposit protection; in BC, the Real Estate Development Marketing Act requires deposits held in trust. However, recovery timelines and interest paid vary. Protect yourself: (1) Verify the project is registered under provincial new home warranty; (2) Ensure deposits go to a trust account (confirm in the agreement); (3) Check the developer's track record; (4) Have a lawyer review the cancellation and refund clauses. The BC Homeowner Protection Office provides BC-specific guidance.
How do I protect myself from construction delays on a new build?
Construction delays are extremely common in Canada — pandemic-era supply chain issues created multi-year delays that persisted into 2025–2027. Protect yourself with: (1) Understanding the builder's permitted delay clause in the purchase agreement — most contracts allow extensive delays with minimal notice; (2) Getting mortgage pre-approval with explicit extension terms — some lenders offer "early rate lock" or floating rate hold for construction; (3) Not giving notice on your rental or committing to a move date until an occupancy permit is issued; (4) Including a lawyer-reviewed long-stop date after which you can exit the contract; (5) Purchasing new home warranty coverage and verifying the builder is registered. The Tarion delayed closing guide explains your rights in Ontario.
Use the Canadian mortgage calculator for new construction scenarios, read about Canada's new mortgage rules including 30-year amortization, or explore minimum down payment requirements.