I am thinking about getting a Progress Draw Mortgage on a home currently being built, and the builder is willing to cover all the interest until the possession date. Are there any disadvantages of such mortgage? What I am getting out of it is that mortgage provider would be able to hold my mortgage rate up to 1 year, while a completion mortgage can't hold it for more than 3-4 months.
Presumably, the inverse of the advantages?
You are guaranteed the interest rate that is written on your mortgage commitment as long as the first draw happens before the rate hold expiry date (typically 120 days from application date). In most cases, it takes at least 6 months or more to build a home from the ground up. That means that you are taking a chance at what the interest rates and qualifying criteria will be several months down the road. You can normally only lock in 120 days prior to possession with a 'Completion Mortgage'. Lenders are constantly changing their guidelines and rates are predicted to increase over the coming months. That means you are much better to obtain draw mortgage financing to avoid any of these uncertainties. You will know that you have your financing in place right away before construction even starts. This is a huge peace of mind so you can relax and get ready for the big move.
So thus, if interest rates are lower 6 months or a year from now, that'd be the disadvantage -- a longer lock-in period.