How Do Loan-to-value Ratios Affect Your Private Mortgage?

June 21, 2022

Key points:

  • Loan-to-value ratios are one of the key factors that determine a private mortgage interest rate. This is the amount of mortgage debt you have minus the value of your property.
  • Higher loan-to-values mean higher interest rates. Most private mortgage rates start around seven per cent and go up to 12 per cent.

Understanding loan-to-value ratios

This video discusses what loan-to-value ratios are, and how they impact your interest rate as a private mortgage borrower. Here’s what you need to know about this ratio and how it corresponds with the rate a lender might offer.

You can also check out the complete private mortgage guide for more detailed information!

Don’t feel like watching? Find the full transcript below!

Chris: [00:00:00] In this video, I want to talk to you about private mortgages and interest rates. Join me as we do a little bit of a deep dive to deconstruct the world of private mortgages. Let’s go.

Loan-to-value ratios impact your private mortgage rate

Chris: [00:00:22] Private mortgages carry higher interest rates than the bank. It’s a fact. The main reason for that is really has to do with risk profile, because private lenders are taking on more risk than your bank does or institutional lenders. So that gets reflected in higher interest rates. But within that world, what drives the rate on your private mortgage more than anything else is really the loan to value. And the loan to value, just as a reminder, is the loan amount – so your existing first mortgage, second mortgage, so the total amount of mortgage debt that you have against your property – versus the value of your home. As an example, if your home is worth $1,000,000 and you have a total of $750,000 of mortgage debt, that is considered to be 75% loan to value. The lower the loan to value, the less risk because we have a lot of equity to cover the lender should a default occur on the mortgage. But as the loan to value creeps, higher, lenders demand a higher and higher interest rate in order to be compensated for the amount of risk that they take on.

How much interest will you pay?

Chris: [00:01:35] Whereas fixed rate mortgages at the bank are determined primarily by Government of Canada bond yields, private mortgages are priced based on how those fixed rates are priced. So there’s usually a difference of about 4 to 5% that private lenders demand in order to put out their money into these riskier loans lent. Private mortgage rates start at about 7 to 8% and then creep up from there based on the ranking of the mortgage, whether it’s a first or second mortgage, and ultimately, the loan to value. The cap for most lenders is approximately 80% loan to value. And at that level, you can expect to pay an interest rate anywhere between 10 and 12%. At the lower end of the spectrum, if your loan to value is between 50% and let’s call it 65 to 75%, you can expect rates at the lower end in the 8 to 9% range.

Chris: [00:02:35] My name is Chris Molder. I am a Toronto based mortgage broker and have a real passion and specialty when it comes to private mortgages. If you have any questions or concerns or would like to discuss your unique circumstances, I’m just a phone call or an email away. Please reach out with confidence. Bye for now.

Need more help or information?

I encourage you to check out the complete private mortgage guide on my website, where I cover all aspects of this type of mortgage financing. 

I can help you determine if private mortgage financing is right for you. I’m just a phone call or email away. You can book a call directly into my calendar below, or get in touch with me here.


Christopher Molder

Mortgage Broker

Christopher is a mortgage broker based in Toronto, Canada. And a son of a broker too. He’s a second generation mortgage broker. Following in his father’s steps he joined the family mortgage business straight out of university.