New construction mortgage in Canada: what buyers need to know
Deposit structures, rate holds, occupancy fees, GST/HST, builder delays, and everything you need to know before buying pre-construction in Canada.
Buying a newly built home in Canada is fundamentally different from buying a resale property. The mortgage process, deposit structure, timeline, and risks are all unique to new construction. Many buyers discover these differences too late — after they have already signed a purchase agreement. This guide covers everything you need to know about financing a new construction home in Canada before you sign anything.
Types of new construction purchases in Canada
Pre-construction (off-plan)
You purchase a unit before it is built — sometimes 2-5 years before closing. You pay deposits during construction and arrange your mortgage only when the building is complete and ready for occupancy.
This is the most common type of new condo purchase in Toronto and Vancouver. The risk is highest here because you are committing to a price today for a property that will not exist for years.
Pre-sale (nearly complete)
The building is under construction but not yet complete. Closing is typically 6-18 months away. Similar to pre-construction but with a shorter timeline and less uncertainty.
Spec home (newly built, move-in ready)
A builder constructs a home without a specific buyer and sells it when complete. This is treated more like a resale purchase — you arrange your mortgage normally and close within the standard 30-90 day window. The new construction complexities are minimal here.
Custom build (you hire a builder)
You own the land and hire a builder to construct your home. This requires construction financing — a completely different product from a standard mortgage. Construction loans draw down in stages as building progresses and convert to a standard mortgage upon completion.
The deposit structure — how new construction payments work
Unlike a resale home where you pay your full down payment at closing, pre-construction purchases require deposits paid in stages throughout the construction period.
Typical condo deposit structure in Ontario:
- 5% on signing
- 5% at 90-120 days
- 5% at occupancy or 18 months
- 5% at closing
Total deposits paid during construction: typically 15-20% of purchase price.
Important: These deposits come from your own funds — they are not part of your mortgage. You must have this cash available in stages, not just at closing. See our minimum down payment guide for how this interacts with insured mortgage rules.
Deposit protection
In Ontario, Tarion protects deposits up to $100,000 if the builder becomes insolvent. In BC, the BC Housing registry provides similar protection. In other provinces protection varies — confirm with a real estate lawyer.
The rate hold challenge in pre-construction
This is one of the biggest financial risks in pre-construction purchases that most buyers do not understand until it is too late.
The problem
Standard mortgage rate holds last 90-120 days. Pre-construction closings are often 2-5 years away. You cannot lock in a mortgage rate today for a closing that is years in the future.
What this means
The mortgage rate environment at your closing date may be completely different from when you signed the purchase agreement. If you bought a pre-construction condo in 2020 at historically low rates expecting to close in 2023, you faced mortgage rates that were 3-4% higher than when you committed.
Extended rate holds
Some lenders offer extended rate holds of up to 24 months for new construction — typically at a premium of 0.10%-0.30% above standard rates. This can be worth it for the certainty it provides.
What to do
Work with a mortgage broker who specializes in new construction financing. They can identify lenders offering the longest rate holds and the best new construction products. Start this process 6-12 months before your expected closing date.
Interim occupancy — the period most buyers do not expect
In Ontario and some other provinces, there is a period between when you can move into your condo and when the building is legally registered as a condominium. This is called the interim occupancy period.
During interim occupancy:
- You can move in and live in the unit
- You are NOT yet the legal owner
- You do NOT yet have a mortgage
- Instead you pay monthly occupancy fees to the developer
Occupancy fees include:
- Interest on the unpaid purchase price (at a rate set by the Ontario government)
- An estimate of property taxes
- An estimate of maintenance fees
Occupancy fees are NOT applied to your purchase price — they are effectively rent paid to the developer. You build no equity during this period.
How long does it last?
Interim occupancy can last anywhere from a few weeks to over a year depending on how quickly the building registers. The average in Toronto is 3-6 months but can be longer.
Financial impact
On a $700,000 condo, occupancy fees can be $2,500-$4,000 per month. This is money spent with no return — it is one of the hidden costs of pre-construction condos that buyers often forget to budget for. Our condo mortgage guide covers other recurring condo costs lenders factor into qualification.
GST/HST on new construction
New construction homes are subject to GST/HST — resale homes are not. This is a significant additional cost that must be factored into your budget.
Federal GST rebate
A partial rebate is available on new homes under $450,000. The maximum federal rebate is $6,300. The rebate phases out completely above $450,000.
Ontario HST rebate
Ontario offers an additional rebate of up to $24,000 on the provincial portion of HST for homes purchased as a primary residence.
Important: For investment properties (condos purchased as rentals), the HST rebate rules are different and more restrictive. If you purchase a pre-construction condo claiming the rebate as a primary residence and then rent it out, you may be required to repay the rebate.
Builder-credited rebate
In many cases builders factor the rebate into the listed price — meaning the price you see already assumes you qualify for the rebate. If you do not qualify (because you are an investor, not an owner-occupier) you may owe the HST on top of the purchase price. Read your Agreement of Purchase and Sale carefully.
Builder delays — your rights and risks
Builder delays are extremely common in new construction. A project scheduled to close in 2024 may not close until 2026. This has significant financial implications.
Your rate hold may expire
If your mortgage rate hold expires due to builder delays, you must reapply at current market rates. If rates have risen, your payment will be higher than planned.
Carrying costs pile up
If you have sold your existing home in anticipation of closing and the builder delays, you may need bridge financing or temporary rental housing — both are expensive.
Permitted delay periods
In Ontario, the Condominium Act gives builders permitted delay periods before buyers can exercise their rights to cancel. Understanding these periods is critical — a real estate lawyer should review your agreement.
Critical dates in Ontario
Your Agreement of Purchase and Sale will contain a Firm Closing Date and an Outside Closing Date. The builder can delay within these dates without penalty. If the builder cannot close by the Outside Closing Date, you may have the right to rescind and receive your deposits back.
The new construction mortgage process step by step
- Step 1 — Sign the Agreement of Purchase and Sale. Review carefully with a real estate lawyer before signing. Do not rely on the builder's lawyer — hire your own.
- Step 2 — Pay deposits as required. Keep these funds in a high-interest savings account or GIC between payments. The money must be liquid and available when due.
- Step 3 — Monitor construction progress. Stay in contact with the builder and track the project. Join any buyer groups or forums for your building.
- Step 4 — Contact a mortgage broker 6-12 months before expected closing. Start the pre-approval process, discuss rate hold options, and prepare your financial documents.
- Step 5 — Arrange final mortgage approximately 90 days before closing. Lock in your rate, submit your full mortgage application, and get approval for the specific unit.
- Step 6 — Review the interim occupancy notice. When you receive your interim occupancy date, arrange temporary financing if needed and understand your occupancy fee obligations.
- Step 7 — Final closing. The building registers, title transfers to you, and your mortgage funds. You are now the legal owner.
Calculate your new construction costs
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Try the AnalyzerFrequently asked questions
Can I use my FHSA for a pre-construction condo purchase?
Yes. FHSA funds can be used for a qualifying pre-construction purchase. The withdrawal must occur in the year of closing or the year before. Work with your financial institution to confirm the timing of your withdrawal relative to your closing date.
What happens if I cannot close on a pre-construction condo?
If you cannot arrange financing at closing, you are in default of your purchase agreement. The builder can keep your deposits and potentially sue you for additional damages. This is a serious risk — never sign a pre-construction agreement without being confident you can close.
Can I sell my pre-construction unit before closing?
Yes — this is called an assignment sale. You sell your right to purchase the unit to another buyer before closing. Assignment sales have tax implications (HST may apply to the profit) and many builders restrict or charge fees for assignments. Review your agreement carefully.
Is new construction covered by a warranty?
Yes. In Ontario new homes are covered by Tarion warranty — 1 year on defects, 2 years on mechanical systems, 7 years on structural defects. BC has similar coverage through the BC New Home Warranty Program. Confirm warranty coverage in your province before purchasing.
Should I use the builder's preferred mortgage lender?
Builders often offer incentives to use their preferred lender — free upgrades, closing cost credits, or rate discounts. These can be valuable but always compare the offered rate against the market. A mortgage broker can tell you if the builder's rate is genuinely competitive or if you would do better elsewhere.
New construction mortgage rules, deposit protection limits, and builder rights vary significantly by province. This article reflects standard Canadian practices as of May 2025. Always hire a real estate lawyer to review your Agreement of Purchase and Sale before signing.