Construction loan mortgages can turn a vacant piece of land – whether in a not-as-yet developed suburban tract, or the wilds of a favourite rural escape – into a person's dream home, chalet or vacation retreat. Because these loans are the vehicles that turn a person's vision of where they would like to live, or where they would like to vacation or retire, they are sometimes referred to as “dream loans'. And everybody has to have a dream.

Construction loan mortgages are typically designed to start as an interest-only loan under which funds are released to the homebuilder in stages as construction progresses. So much is released to purchase the property, so much when the foundation is built, when the structure of the home is enclosed etc. Ultimately, when construction is completed and an occupancy permit is issued, the interest-only construction loan is then rolled into a home mortgage with the standard amortization terms and payment structures etc. of a normal home mortgage.

During the construction phase of building such a “dream home”, the construction loan that funds the project will typically be an interest-only loan with variable rate interest. After all, in most instances the person who financing construction of his or her dream will most often be living off property in a second home, or otherwise renting or paying for accommodation. Upon completion, the construction loan is paid off, and a regular mortgage is drawn up on the property. The advantage of a construction loan mortgage is that the same lender can often be found to complete the financing of the homeowner/builder's project: funding short-term construction coasts, and funding the long term mortgage on the property.

Most lenders will offer one or many varieties of such loan/mortgages. Working with a lender that will finance both ends of the transaction cuts down the application and its incidental costs and allows the homeowner/builder to negotiate favourable mortgage terms for the long haul.

A mortgage broker with experience in handling construction loan mortgages can guide the person building his or her dream home with the advice and expertise that will guide a first time builder through the process. Lenders will not typically finance all of the costs for the construction project – although, generally, a mortgage broker can help arrange financing for up to 95% of the project.

An experienced mortgage broker will be able to provide expertise and guidance with respect to (i) acquisition of the land and arranging servicing of the building lot, (ii) construction financing and planning when and in what amounts to draw down funds from the construction loan, as well as (iii) assistanc with converting the construction loan into a regularized mortgage when construction is complete and your dream home is ready for occupancy.

Comparison shop when looking for the best terms for your construction loan mortgage. Enlist the help of a mortgage broker who will be able to connect you to a host of different lenders. Compare their terms. Note that it could be worthwhile to pay a slightly higher interest rate during the construction phase, as this will be a relatively short-term cost, if you can get better mortgage terms later from the same lender, versus going to other lenders. Shop around, work with a broker, and do not be afraid to ask the question that will help you turn your dreams into your reality.