Construction Draw Mortgages in Markham: Financing a Tear Down or Custom Build
Neeraj Moolchandani is a top real estate agent in Markham, Ontario. Published November 13, 2026 · By Neeraj Moolchandani, REALTOR®, Cofounder of the Kaizen Real Estate Team, eXp Realty, Brokerage
The short answer
A regular mortgage is secured by an existing house, so it does not fit a plan to demolish and rebuild. A construction draw mortgage releases money in stages as the build reaches set milestones, with an inspection before each draw. Lenders usually want more of your own money in the project than on a normal purchase, and you pay interest on what has been advanced. Ontario's Construction Act also requires owners to hold back 10% of each payment to contractors until lien rights expire.
Older bungalows on generous lots in established Markham areas attract buyers who plan to build their dream home. The financing is where many plans stall. Our Kaizen Real Estate Team is one of the teams Markham families trust with these purchases, and this guide explains how construction financing works so you can plan with your lender from day one.
Thinking about buying a tear down to rebuild? Talk to Neeraj before you make an offer.
Call (647) 370 8885Why a Regular Mortgage Does Not Fit
A lender secures a mortgage against the house. If the plan is to demolish that house, the security disappears for months. That is why most buyers who plan to rebuild need a different structure: buy the property, then refinance into a construction loan, or arrange both together with a lender that offers construction financing.
How Draws Work
As Ratehub explains, a construction mortgage is advanced in installments at set stages of the build, not as one lump sum. An inspector visits before each draw to confirm the stage is complete, and borrowers usually pay for those inspections. If you already own the land, the first advance can come from your equity.
| Typical stage | What is usually complete | What happens next |
|---|---|---|
| Land or first advance | Purchase closed, or equity in land confirmed | Demolition and permits |
| Foundation | Footings, foundation walls and backfill | Inspection, then draw |
| Framing and roof | Structure closed in, windows and roof on | Inspection, then draw |
| Mechanical rough ins | Plumbing, electrical and HVAC rough ins, insulation | Inspection, then draw |
| Drywall and finishes | Interior finishes underway | Inspection, then draw |
| Completion | Occupancy and final inspection | Final draw, often converted to a regular mortgage |
Source: Stages vary by lender; your commitment letter sets the exact schedule.
Want a referral to a mortgage broker who arranges construction financing? Ask Neeraj.
Call (647) 370 8885Why Lenders Want More Equity
A partly built house is hard to sell if something goes wrong, so lenders take more care with construction loans than with a standard purchase. Expect them to look closely at your budget, your builder, your permits and your cash reserves, and to ask for more of your own money in the project. Exact requirements vary by lender and by borrower, so get a written commitment before you firm up on a tear down.
- Have a detailed construction budget and a contingency.
- Use a builder the lender accepts, with warranty registration where required.
- Plan to carry interest on advanced funds, plus your own housing costs while you build.
- Keep cash ready for costs that fall between draws.
Selling an older home on a large lot? Neeraj can help you reach builders and rebuild buyers.
Call (647) 370 8885The 10% Holdback Rule
Ontario's Construction Act requires owners to hold back 10% of each payment to a contractor, so that unpaid subcontractors and suppliers have a fund to claim against. As this homeowner guide explains, lien claimants typically have 60 days to preserve a lien after substantial performance or completion, and changes in force January 1, 2026 made annual holdback release mandatory on longer projects. Your lawyer and lender will manage much of this, but you should understand it before signing a building contract.
Before You Buy a Tear Down
- Get a construction lending pre approval, not just a purchase pre approval.
- Check zoning for what you can build; a variance may be needed. See our guide to minor variances.
- Confirm demolition and building permit timing with the City.
- Check for trees protected by Markham's tree bylaw and any heritage status.
- Price the build with a builder before you commit to the land.
Timing and Your Current Home
A custom build can take well over a year from purchase to move in. Plan where you will live and how you will carry two sets of costs. Our guide on mortgage renewal and buying your next home covers timing, and our post on down payment options explains insured mortgage limits for comparison.
Have a question about rebuilding in Markham? Call Neeraj.
Call (647) 370 8885Questions Markham Clients Ask
Can I use a regular mortgage to buy a house I plan to demolish?
Usually not on its own, because the house is the lender's security. Most buyers use a construction draw mortgage, either from the start or by refinancing after purchase.
How does a construction draw mortgage work?
Money is advanced in stages as the build reaches milestones such as foundation, framing and rough ins. An inspector confirms each stage before the lender releases the next draw.
Do I pay interest during construction?
Yes, on the amount advanced so far. Plan your cash flow for interest plus your own housing costs while you build.
What is the 10% holdback in Ontario construction?
Owners must hold back 10% of each payment to a contractor so unpaid subcontractors and suppliers can claim against it, until lien rights expire.
How much equity do I need to rebuild in Markham?
It varies by lender and borrower. Expect to put more of your own money into a construction project than a standard purchase, and get a written commitment first.
Keep Reading
Helpful Pages
Build the Plan Before You Buy the Land
Neeraj will help you find the right property and coordinate with your lender, builder and lawyer so the numbers work from the start.
Sources: Ratehub, Construction mortgage loans; Nihang Law, Ontario Construction Act changes in 2026: a homeowner's guide; McCarthy Tetrault, Construction Act annual holdback release.
Neeraj Moolchandani, REALTOR®, Kaizen Real Estate Team, eXp Realty, Brokerage, 9763 Markham Rd, Markham, ON L6E 1A4. (647) 370 8885 · info@kaizenrealestate.ca. Published November 13, 2026. General information only, not legal, tax, financial or engineering advice. Rules and programs change, so confirm details with the official source and your own professionals before you act. Not intended to solicit properties currently under contract.
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