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Considering development finance? Use this simple calculator to understand how much you could borrow and how much it will cost.
Page written by Ian Hawkins. Last reviewed on July 10, 2024. Next review due April 1, 2025.
Property security
Initial loan (day 1)
Construction loan
Interest
This calculator is intended for illustration purposes only and exact payment terms should be agreed with a lender before taking out a loan.
Facility overview
Loan term
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Total facility amount
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Annual interest rate
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Initial loan (day 1) interest allowance
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Construction costs loan interest allowance
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Available balance
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Breakdown of loan facility
Gross initial loan (day 1)
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Gross LTV
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Arrangement fee (2%)
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Net initial loan (day 1)
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Construction
Loan facility (100% costs)
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Project overview
Current property value
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Total development costs
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Gross development value
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LTGDV
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LTC
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Exit fee (2%)
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Developer's equity contribution
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Profit
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Profit on cost
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GDV per unit
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GDV per square foot
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Construction cost per square foot
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Development finance refers to loans specifically designed to cover the costs associated with residential or commercial development projects. Unlike long-term commercial property mortgages, development financing is typically short-term, ranging from 6 to 24 months. These loans can be used to purchase land and cover construction costs, and are suitable for new builds, conversions, or refurbishments of existing properties.
Property development finance helps fund residential or commercial development. Unlike traditional home or commercial mortgages used to buy existing properties, development finance is intended for constructing new properties or renovating existing ones. Since the development property might not yet exist (new-build) or will undergo significant changes (refurbs and conversions), these loans are based on both the cost of the development and the projected future value of the property once completed. Key factors like the loan-to-cost (LTC) ratio, the loan-to-gross development value (LTGDV) ratio, the borrower’s track record, and repayment ability are considered during the loan assessment.
With development loans, interest is usually rolled up or capitalised, meaning it’s added to the loan balance instead of being paid monthly. This approach avoids cash flow strain during construction, with the total interest paid when the properties are sold or refinanced.
Development loans are paid out in stages. Here’s an example for a new-build:
A plot of land costs CAD 600,000 with CAD 2,000,000 for building ten houses. The total cost is CAD 2,600,000 (excluding fees and interest). The estimated value of each house is CAD 350,000, making the Gross Development Value (GDV) CAD 3,500,000.
Development finance might cover up to 70% of the land cost (CAD 420,000) and 90% of the construction cost (CAD 1,800,000), totalling a loan facility of CAD 2,220,000. Funds are released in stages, starting with CAD 420,000 for land purchase. The developer contributes CAD 180,000 to complete the purchase. The remaining CAD 1,800,000 is released as construction progresses, and the loan, plus interest, is repaid upon selling the houses.
Development finance options are tailored to each project, with no one-size-fits-all solution. Here are common uses:
Some projects might require a mix of different loan products. Contact us now to discover the best financing for your project, and our experienced team will guide you through the process.
Interest rates range from 7% to 15% APR. Given that development loans are short-term, the total deal costs and loan terms may be more significant than the interest rate alone. Our team will help you navigate the various options to find the most competitive deal.
Yes. Most lenders require full planning permission before issuing a formal loan offer and starting legal due diligence. Some niche lenders might proceed with outline permission but will only release funds upon full planning consent.
Yes. While it may be more challenging, niche funders or mainstream lenders might offer financing if you partner with an experienced developer. Reach out and we can help.
Probably. There are options for borrowers with bad credit or no credit history. Even if you’ve been turned down elsewhere, we might still secure the funding you need. Contact us for a confidential discussion about your project.
Bridging finance is a short-term loan used in real estate development to cover the gap between property-related transactions.
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