A construction mortgage is a type of financing that is used for the building of a new home.
The Construction Loan is typically approved before the building of the subject home starts and increments of the loan are being extended during the home building phase and while the building progresses.

The Construction Mortgage only requires payment of interest during the construction period. When the building phase is over, the Construction Loan amount becomes due and payable. However, customarily Construction Mortgages can either automatically roll over into Standard Mortgages as they could have been created as the so-called One-Time Close Loans. The advantage of a One-Time-Close loan is that Borrowers apply for a loan only once, and will have one loan closing only.

                    If the Construction Loan has not been originated as a One-Time Close Loan, it can be refinanced into a so-called Permanent Loan with fixed interest rate after the property has been completed

When a Borrower does not take out a construction-to-permanent loan, they might be using a stand-alone Construction Loan. A Stand-Alone Construction Loan typically has a one-year maximum term during the construction period and might be obtained with a smaller down payment.
 The interest rate on a stand-alone Construction Mortgage can not be locked and it is important to know that the interest rates might also be higher than the rates on a construction-to-permanent loan.

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