When Do You Start Paying a Mortgage On a New Build?
Building a new home is an option many families choose, but it can come with questions like; when do you start actually paying the mortgage?
When you start paying the mortgage on a new build depends on whether you have a completion mortgage or a construction mortgage. With a completion mortgage, you only pay once the home is built. With a construction mortgage, you interest is accruing during construction and either monthly interest payments or interest deductions from draws will be required.
Key Takeaways
For completion mortgages, payments start after home completion and possession.
Payments start during construction for construction mortgages.
Work with a mortgage broker so you know which payments are due and when.
New Build Mortgage Types
There are two main types of new-build mortgages:
Completion mortgages
Construction mortgages
Usually, the type of mortgage you’ll have is determined by the builder. Which type you have will determine when you start paying your mortgage.
Completion Mortgages
Like the name suggests, with a completion mortgage, you will only start paying your mortgage when the home is complete, and you have possession.
Construction Mortgages
Construction mortgages are also known as builder’s mortgages or draw mortgages, because payments are made in draws throughout construction. So you’ll pay progress advances on a pre-set schedule as the home's construction progresses.
The payment schedule depends on your lender. Some require interest-only payments and others deduct the interest accrued from the subsequent advance.
If your build isn't complete between 12-18 months from approval (the number of months is lender-dependent), then your amortizing mortgage payments will start on the full approved balance.
The Role of the Builder’s Schedule
The builder’s construction schedule is crucial. It influences when your mortgage payments or your progress advance payments start.
Communicate regularly with your builder to stay updated on progress. Any changes in the schedule can impact your mortgage timeline, so it’s vital to be informed and ready to adapt if necessary.
Completion
Certificate of Occupancy
The certificate of occupancy is a document that proves your home is legally ready to be lived in. This certificate shows that your builder has met all local building codes and standards. It's essential because it confirms the home is safe and up to code.
You usually get this certificate after the final inspection. A building inspector checks everything from electrical to plumbing. Without this certificate, you can’t legally live in the house. It’s crucial to follow up with your builder to ensure all requirements are met on time.
Payments Upon Completion
Once the construction is complete and you have a certificate of occupancy, regular mortgage payments will begin. For a completion mortgage, this means your first mortgage payment will go through.
For a construction mortgage, this means you’ll go from interest only payments to a regular mortgage payment, that includes interest and principal repayment, every month. You don’t need to reapply or be approved at this point unless you want to switch to a different mortgage lender.
How to Know When Your New Build Mortgage Payments Will Start
When buying a new build, understanding when to start paying your mortgage is important. Typically, mortgage payments begin once the construction is finished and you have taken possession of your home. Before this, you may need to make interest-only payments if you have a construction-only loan.
For professional advice tailored to your situation, reach out to Spire Mortgage to speak with an experienced mortgage broker.
