This value is 85% of the value of your home subtracted by your current mortgage and other secured loans. Some private lenders may have higher or lower limits.
The most common maximum LTVs is 75% and 85%, however, some private lenders may even lend to an LTV of up to 95%. Different private mortgage lenders have different maximum loan-to-value ratios that they will lend out.
If you’re looking to get a private first mortgage, the maximum amount that you can borrow is based on your home equity. This would simply be the value of your home. You would then multiply this by the maximum LTV that your lender offers. For example, if you have a home valued at $500,000 with no current mortgage or other loans secured against your home, then with a private lender with an LTV of 85%, you can borrow up to $425,000.
If you currently have a mortgage and are looking to get a private first mortgage, then you would have to pay off your mortgage with the private mortgage. For example, let’s say you have a home valued at $500,000 with a mortgage of $200,000. With an LTV of 85%, you can borrow $425,000, however $200,000 of that would go towards your current mortgage to pay it off. You would then have $225,000 in cash.
If you currently have a mortgage and are looking to get a second mortgage, you would keep your first mortgage intact. You will simply borrow funds from the second mortgage in addition to your current mortgage.
For example, a home valued at $500,000 has a first mortgage of $200,000. A private lender is offering you a second mortgage for an LTV of 85%. The amount that you can borrow with your second mortgage would still be $225,000 (($500,000 x 0.85) - $200,000). However, the difference is that you are able to borrow money without touching your first mortgage.
To see a list of private mortgage lenders in Canada, their rates, and their maximum LTVs, visit our private mortgage lenders rates page.
Most private mortgages are interest-only. This means that you only need to make interest payments throughout your private mortgage term. Once your term is over, you will still owe the same amount of principal as when you first began, as no principal payments are made. Private mortgages have short terms, commonly 1 or 2 years.
An interest-only mortgage will require only interest payments for the entire term of the mortgage. Since you will not be making any principal payments, your principal will remain the same at the end of your term. This means that your monthly payments will be smaller, but you will not be making any progress in paying down your mortgage.
Let’s say that you are a homeowner in Toronto with a sizable amount of home equity, but you currently have a mortgage from a major bank. You would like to borrow $200,000 for one year to do some renovations, consolidate debt, and to travel. You go to a private mortgage lender in Toronto that offers a rate of 7% for a private second mortgage, excluding fees.
The total interest cost of this private mortgage would be $14,000 for the year ($200,000 x 0.07).
The monthly cost of this private would be $1,167 per month ($14,000/12 months).
At the end of one year, you would still owe $200,000. The payments that you made went towards interest, not the principal.