Construction Mortgage: Understand Progress Draws
Know which construction stages trigger each draw and which inspections and invoices the lender will require.
Published 2026-07-21
A construction loan resembles no mortgage: the money is not released at signing but in draws, at the worksite's pace — foundations, framing, building envelope, finishing — each disbursement conditional on an inspection ordered by the lender and on the contractor's invoices. Interest runs on the amounts released, payable during construction on top of current housing, a double burden to budget for the site's entire duration. The real breaking point hides between the draws: the trades' invoices and the lender's disbursements never align perfectly, an inspection adds days, and the liquidity reserve built for those gaps makes the difference between a site that advances and a site that stalls. At key handover, the loan converts to an ordinary mortgage. This article details the draw schedule, the construction-period budget and the sizing of the reserve that keeps the site moving — the line item no builder's quote will ever show.
Follow the draw schedule
A construction loan does not release the approved amount at signing: it frees it in tranches, each conditional on a completed construction stage. The typical schedule cuts the project into four or five draws — foundations poured, structure and roof closed, envelope sealed, finishing, handover. The contract specifies the percentage released at each stage and the criteria for reaching it. That mechanism protects the lender against an abandoned site, and it imposes on the borrower a cash-flow constraint few anticipate: the money arrives after the work, never before. The loan's calendar and the contractor's must therefore align from the construction contract's signing, or the two schedules will contradict each other throughout the project.
Prepare the inspections and invoices
Each draw triggers on proof, and the proof takes two forms: an inspection ordered by the lender, which confirms the actual progress, and the contractor's invoices for the work performed. These verifications add delays, often five to ten business days between the request and the payment, which must be built into the trades' payment calendar. Subcontractors' releases sometimes join the requirements, a protection against construction legal hypothecs. Coordination falls to the borrower: requesting the inspection as soon as the stage is reached rather than after, gathering the invoices in advance, and warning the contractor of the real payment delays so they do not count on funds that will take another week.
Budget the construction interest
During the build, interest accrues on the amounts already drawn and is paid monthly, on top of your current housing. That double burden lasts the whole construction, six to twelve months depending on the project, and it grows as the tranches release: the final months cost far more than the first. The calculation is done in advance, tranche by tranche, to know the total sum to absorb before the keys are handed over. Some lenders offer to capitalize that interest into the loan, a solution that relieves the monthly budget by raising the final balance. At handover, the loan converts to an ordinary mortgage and normal amortization begins.
Fund the gaps between tranches
Construction projects' breaking point sits between the draws: the contractor bills the plumbing before the next tranche is released, the inspection adds days, a trade demands a deposit. Without a liquidity reserve, the site stalls or the credit card takes over at twenty-one percent. The reserve is sized on the largest foreseeable gap between an invoice and its corresponding draw, often fifteen to twenty-five thousand dollars on a residential project, and it is built before the first shovel. That sum is not a contingency cushion — it is a cash-flow tool: it circulates throughout the build and returns to its place at the end.
Quebec scenario: compare before confirming
Building in Sainte-Brigitte-de-Laval: a couple's dream, financed through a mechanism neither of them knows. A construction loan does not hand over $450,000 on day one; it disburses in draws, at the pace of the worksite, and that machinery structures the whole year. The schedule in the contract details the stages triggering each draw — foundations, framing and roof, building envelope closed, finishing — each tranche released only after an inspection ordered by the lender and against the contractor's invoices. Interest runs from the first draw, on the amounts released only, payable during construction on top of their current rent: a seven-month double burden the couple budgets in advance. The surprise comes from cash flow: the contractor bills the plumbing before the next tranche is released, and the inspection adds five days of waiting. The $25,000 reserve, built precisely for these gaps, absorbs the lag; without it, the site would have stalled or the credit card would have stepped in. At key handover, the loan converts to an ordinary mortgage. The couple keeps one lesson for friends dreaming of the same project: in a construction loan, the liquidity between two draws matters as much as the rate.
Checklist
- Read the draw schedule in the contract
- Identify the stages triggering each tranche
- Plan for the required inspections and invoices
- Budget the interest during construction
- Count the housing-plus-site double burden
- Build the between-draws reserve
- Track the alignment of invoices and draws
- Allow for inspection waiting days
- Prepare the conversion to an ordinary mortgage
Frequently asked questions
How is a construction loan's money released?
In draws, at the worksite's pace: foundations, framing and roof, building envelope, finishing — per the contract's schedule. Each draw requires an inspection ordered by the lender and the contractor's invoices. The total amount is never available at once.
What gets paid during construction?
Interest on the amounts already drawn, on top of your current housing: a double burden lasting the whole build, budgeted in advance. At key handover, the loan converts to an ordinary mortgage and normal amortization begins.
Why is a liquidity reserve indispensable?
Because the contractor's invoices and the lender's draws never align perfectly: an inspection adds days, a trade bills before the next tranche. The reserve covers those gaps; without it, the site stalls or the credit card takes over.