A mortgage broker in Alberta is working with a developer, 'Summit Homes Inc.', on a construction loan for a 10-unit townhouse project in Calgary. The total project cost is estimated at $8 million, and Summit Homes Inc. has secured a first mortgage for $6 million. What key risk metric should the broker be focused on to determine if the financing is adequate relative to the project's overall expenditures?

Question: A mortgage broker in Alberta is working with a developer, 'Summit Homes Inc.', on a construction loan for a 10-unit townhouse project in Calgary. The total project cost is estimated at $8 million, and Summit Homes Inc. has secured a first mortgage for $6 million. What key risk metric should the broker be focused on to determine if the financing is adequate relative to the project's overall expenditures?

Answer options: ✅ Loan-to-Cost (LTC) ratio.

• Loan-to-Value (LTV) ratio.
• Debt Service Coverage Ratio (DSCR).
• Gross Debt Service (GDS) ratio.

Correct answer: Loan-to-Cost (LTC) ratio.

Explanation: The Loan-to-Cost (LTC) ratio is crucial for construction financing as it compares the loan amount directly against the total cost of acquiring and developing a project, indicating the equity injection required from the borrower.