The purchase plus improvements mortgage is one of the most underused financing tools in Canadian real estate. It lets you roll the cost of renovations into your mortgage when you buy a fixer-upper, so you get one loan, one interest rate, and one monthly payment that covers both the purchase and the upgrades. For buyers who have found a home with great bones but outdated finishes — or one that needs mechanical work — this product avoids the need for a separate renovation loan, HELOC, or line of credit at a higher rate.
The concept is straightforward: you buy a property, the lender appraises it at its “as-improved” value (what it will be worth after renovations), and the mortgage is based on that higher value. The renovation funds are held back and released to you as the work is completed.
How It Works: Step by Step
| Step | What Happens |
|---|---|
| 1 | Find a property that needs work |
| 2 | Get contractor quotes for the planned renovations |
| 3 | Apply for purchase plus improvements mortgage |
| 4 | Lender orders two appraisals: “as-is” value and “as-improved” value |
| 5 | Mortgage is approved based on as-improved value |
| 6 | You close on the property at the purchase price |
| 7 | Renovation funds are held back by the lender |
| 8 | You complete renovations (typically within 90–120 days) |
| 9 | Submit invoices and/or appraiser verifies completion |
| 10 | Lender releases holdback funds |
The Two Appraisals
The lender needs to know:
- As-is value — what the property is worth today, before any work
- As-improved value — what it will be worth after the planned renovations are completed
Your mortgage cannot exceed the as-improved value (minus your required down payment). Both appraisals are typically done by the same appraiser at the same time based on the renovation plans and contractor quotes you provide.
Financial Example
| Component | Amount |
|---|---|
| Purchase price | $425,000 |
| Planned renovations | $45,000 |
| As-improved appraised value | $490,000 |
| Total financing needed | $470,000 |
| Down payment (5% of $425,000) | $21,250 |
| Mortgage amount | $448,750 |
| CMHC premium (4.00%) | $17,950 |
| Total mortgage with CMHC | $466,700 |
Cost Comparison: Purchase Plus vs Separate Financing
| Approach | Mortgage Rate | Reno Financing Rate | Effective Blended Rate | Monthly Cost |
|---|---|---|---|---|
| Purchase plus improvements | 4.59% on $466,700 | Included at 4.59% | 4.59% | $2,594 |
| Standard mortgage + personal loan | 4.59% on $403,750 | 8.99% on $45,000 | ~5.08% blended | $2,668 |
| Standard mortgage + credit card | 4.59% on $403,750 | 19.99% on $45,000 | ~6.24% blended | $2,876 |
| Standard mortgage + HELOC | 4.59% on $403,750 | 6.45% on $45,000 | ~4.79% blended | $2,618 |
The purchase plus improvements mortgage is the cheapest option because the renovation funds are financed at mortgage rates (4–5%) rather than personal loan rates (8–10%), credit card rates (20%), or HELOC rates (6–7%).
Over 5 years, the savings range from:
- vs personal loan: ~$4,440
- vs HELOC: ~$1,440
- vs credit card: ~$16,920
Eligibility Requirements
Property Requirements
| Requirement | Details |
|---|---|
| Property type | Single-family homes, condos, townhouses, duplexes (1–4 units) |
| Occupancy | Must be owner-occupied (primary residence) |
| Condition | Habitable at closing — cannot be a teardown or gut renovation |
| Location | Must be in a location served by standard lenders |
Renovation Requirements
| Requirement | Details |
|---|---|
| Type of work | Must be permanent improvements that add value |
| Contractor | Licensed contractor required (most lenders) |
| Cost documentation | Detailed quotes and scope of work required |
| Timeline | Must be completed within 90–120 days (lender-dependent) |
| Maximum amount | Typically 10–20% of as-improved value, or $40,000–$60,000 |
What Qualifies as an Improvement
| Qualifies | Does Not Qualify |
|---|---|
| Kitchen renovation | Furniture and decor |
| Bathroom renovation | Appliances (some lenders allow) |
| Roof replacement | Landscaping (cosmetic only) |
| New windows and doors | Hot tub or pool (some exceptions) |
| Furnace / HVAC replacement | Maintenance and repairs (e.g., painting) |
| Electrical rewiring | Detached structures (some exceptions) |
| Plumbing upgrades | Temporary structures |
| Foundation repair | Security systems |
| Flooring | Cleaning and staging |
| Additions and extensions | Demolition without rebuild |
| Basement finishing | Work already completed before closing |
| Accessibility modifications | Tools and equipment |
The Holdback Process
The holdback is the part that makes this product different from a standard mortgage. Here is how it works at most lenders:
How Funds Are Released
| Stage | What Happens | Funds Released |
|---|---|---|
| Closing | You take possession of the home; renovation funds held by lawyer or lender | 0% |
| Progress draw 1 (optional) | ~50% of work completed; lender may inspect | 50% of holdback |
| Final draw | All work completed; appraiser or lender inspector verifies | Remaining 100% |
Some lenders release everything in one draw only after all work is done. Others allow up to three progress draws. Ask your lender before committing.
Important Holdback Rules
| Rule | Details |
|---|---|
| Interest accrues on full mortgage | You pay interest on the entire mortgage amount from closing, including the holdback |
| Timeline | Typically 90–120 days to complete work |
| Extensions | Possible but not guaranteed; may require additional fees |
| Changes to scope | Must be approved by lender; changes to the renovation plan may require new appraisal |
| Cost overruns | You cover anything above the approved amount out of pocket |
The fact that you pay interest on the full mortgage from day one — even though the holdback funds have not been released — is a real cost. On a $45,000 holdback at 4.59%, that is approximately $172/month in interest on money sitting in trust. Over a 3-month renovation, that is about $516 in carrying cost.
Lender Policies
Big 5 Banks
| Lender | Offers Purchase Plus? | Max Improvement Amount | Holdback Release |
|---|---|---|---|
| RBC | Yes | Up to 20% of as-improved value | 1–2 draws |
| TD | Yes | Case-by-case; typically $40,000–$60,000 | 1 draw |
| BMO | Yes | Up to 20% of as-improved value | 1–2 draws |
| Scotiabank | Yes | Case-by-case | 1 draw |
| CIBC | Yes | Up to 20% of as-improved value | 1–2 draws |
Monoline Lenders
| Lender | Offers Purchase Plus? | Notes |
|---|---|---|
| MCAP | Yes | Popular option for brokers |
| First National | Yes | Available through brokers |
| CMLS | Limited | Case-by-case |
| Merix/Lendwise | Yes | Competitive rates |
CMHC, Sagen, and Canada Guaranty
All three default insurers support purchase plus improvements on insured mortgages. Key rules:
| Insurer Rule | Details |
|---|---|
| Improvements must add value | Cosmetic-only may be excluded |
| As-improved value sets the ceiling | Total mortgage cannot exceed as-improved value |
| Standard insurance premiums apply | Calculated on total mortgage (purchase + improvements) |
| Down payment based on purchase price | Not on purchase price + improvements |
Common Pitfalls
Renovation Budget Overruns
The number one problem buyers face with purchase plus improvements is underestimating renovation costs. If your approved holdback is $45,000 and the renovations end up costing $65,000, you must cover the $20,000 difference out of pocket.
How to mitigate:
- Get at least two contractor quotes before applying
- Add a 15–20% contingency to your budget
- Prioritize structural and mechanical work over cosmetic upgrades
- Get detailed, itemized quotes — not rough estimates
Tight Timelines
The 90–120 day completion window is firm at most lenders. If your contractors run behind schedule:
| Consequence | Impact |
|---|---|
| Extension request | Additional appraisal fee ($300–500) and administrative delay |
| Funds not released | You have paid interest on the holdback for months with nothing to show |
| Lender may cancel holdback | Rare, but possible if work is significantly delayed |
How to mitigate:
- Have contractors lined up before closing
- Order materials early (supply chain delays are real)
- Build in buffer time — start renovations immediately after closing
Scope Creep
If you discover additional problems during renovation (e.g., mold behind walls, knob-and-tube wiring), you cannot simply increase the holdback. Any changes to scope require lender approval and may need a revised appraisal.
Purchase Plus Improvements vs Other Renovation Financing
| Feature | Purchase Plus | Renovation Loan | HELOC | Personal Loan |
|---|---|---|---|---|
| Interest rate | Mortgage rate (4–5%) | 6–9% | Prime + 0.50% | 7–12% |
| Timing | Must be arranged at purchase | Anytime | After 20% equity | Anytime |
| Maximum amount | 10–20% of value | $10,000–100,000 | Up to 65% of home value | $10,000–50,000 |
| Repayment | 25 years (amortized) | 5–15 years | Interest-only minimum | 1–7 years |
| Collateral | The home | Unsecured or secured | The home | Unsecured |
| Tax deductible? | No (primary residence) | No | No (primary residence) | No |
For renovations at the time of purchase, the purchase plus improvements mortgage is almost always the most cost-effective option.
Tips for a Smooth Application
| Tip | Why It Matters |
|---|---|
| Work with a mortgage broker | Brokers have access to multiple lenders’ purchase plus programs |
| Get detailed contractor quotes | Vague estimates will slow or kill the application |
| Include before-and-after scope | Help the appraiser understand the planned improvements |
| Have contractor references ready | Some lenders verify the contractor’s legitimacy |
| Plan for out-of-pocket expenses | Appliances, cosmetic touches, and overruns are on you |
| Know your timeline | Have contractors committed to start dates |