Completion Mortgage vs. Draw Mortgage: Which One is Right for You?

When you’re buying a new construction home, you may have a choice between two types of mortgages: completion mortgages and draw mortgages. Each type of mortgage has its own advantages and disadvantages, and it’s important to understand them before you make a decision.

Completion Mortgage

A completion mortgage is a type of mortgage that’s used to finance the purchase of a newly built home upon possession. With a completion mortgage, you put a down payment down and the lender provides you with the full loan amount at the time of closing. You don’t start making payments on the mortgage until you have possession of the home.

One advantage of a completion mortgage is that you know exactly how much you’re borrowing and what your monthly payments will be from the start. This can help you budget more effectively and avoid any surprises down the line.

Draw Mortgage

A draw mortgage, also known as a construction mortgage or a progress-draw mortgage, is a type of mortgage that’s used to finance the construction of a new home. With a draw mortgage, the lender provides you with funds in stages, or “draws,” as the construction progresses.

One advantage of a draw mortgage is that you only pay interest on the amount of money you’ve drawn, not on the full loan amount. This can help you save money on interest payments during the construction phase, when you may not yet be living in the home or making regular mortgage payments.

Which One is Right for You?

So, which type of mortgage is right for you? It depends on your situation and the builders procedure.

A completion mortgage may be the way to go. This type of mortgage is straightforward and easy to understand, and it can help you budget more effectively.

If you’re building a new home from scratch, a draw mortgage may be a better fit. This type of mortgage allows you to finance the construction in stages, and lock in your interest rate.

Ultimately, the decision between a completion mortgage and a draw mortgage depends on your specific needs and the builder. It’s important to work with a mortgage professional who can help you weigh the pros and cons of each option and choose the one that’s best for you.