…how much can you borrow on a Private Mortgage
If you’ve ever wondered, “How much can I actually borrow with a private mortgage?” you’re not alone. It’s one of the most common questions I hear, especially when someone is tight on cash flow or doing a big renovation project. Private mortgages can seem like the magic solution—fast money, fewer questions, and a focus on the property’s value rather than your credit score or income.
But here’s the thing: the higher the loan-to-value (LTV) on a private mortgage, the more you need a rock-solid exit strategy. Without one, that “quick fix” can turn into a costly financial headache.
Allow me to break it down.
Topics I’ll Cover
How High Can You Go? Maximum LTV on a Private Mortgage
Why an Exit Strategy is Non-Negotiable
A Real-Life Example from the Field
How Realtors and Clients Can Use This Knowledge
How High Can You Go? Maximum LTV on a Private Mortgage
Most private lenders in Ontario will go as high as 85% of your property’s appraised value, but that’s the upper limit. Some conservative lenders might top out at 75% or even 65% in rural areas or riskier situations. Why? Because private lending is equity-based. Equity based lending is lending determined by the value and liquidity of the underlying collateral, namely, the property. The lender is betting on your property’s value, not necessarily your income or credit, so they want a cushion in case things go sideways.
Sure, there are deals out there where people get 90% LTV, but those are rare and usually reserved for very strong exit scenarios—like a quick flip, near-completion construction, or a guaranteed payout from another lender within months. For the average homeowner, 80–85% is the practical ceiling.
Why an Exit Strategy is Non-Negotiable
In the context of a private mortgage, an exit strategy is simply the plan for how the borrower will pay off or move away from the private mortgage when it comes due.
Private mortgages are short-term solutions—typically 6 to 24 months, often interest-only, and at higher interest rates. They’re designed to bridge a gap, not serve as a long-term home financing tool. An exit strategy is what ensures you don’t get stuck in that expensive, short-term loan.
Here’s the cold, hard truth: private mortgages are expensive and short-term. You’re paying higher rates (often 8–12% or more) and extra fees. Many are interest-only loans with terms as short as six months to one year.
If you don’t have a clear plan—an “exit strategy”—you risk:
- Paying costly renewal fees when the private mortgage matures.
- Getting stuck in a cycle of high interest with no path back to traditional lenders.
- Potentially having to sell your property if no refinancing option is available.
Common Exit Strategies
Refinance to a Prime Lender
For borrowers whose credit or income situation will improve (e.g., after paying down debts or finishing probation at a job).
Example: Someone with a recent bankruptcy using private funding until enough time passes to qualify with a bank.
Refinance to an Alternative Lender (Alt-A)
For self-employed individuals or those with non-traditional income documentation.
Example: Using a private mortgage during construction or renovation and then moving to an alternative lender once the property is stabilized or income is proven.
Sale of the Property
If the property was purchased as a flip or an investment, or if the owner’s long-term plan was to sell once values increased.
Example: A borrower who bought a distressed property, fixed it up, and sells it at a profit, paying off the private mortgage in full.
Paying It Off in Cash
Less common but possible for borrowers with pending funds from inheritance, business sale, lawsuit settlement, or another liquidity event.
A Real-Life Example from the Field
‘Maria’ owned a home worth $600,000. She wanted to add a second suite and needed $100,000 fast to finish it, so she turned to a private lender for a second mortgage. She already had a prime first mortgage with a good rate and didn’t want to break it, but she needed quick access to $100,000 to add a legal second suite.
Why Maria Couldn’t Just Use Her Bank
- Property Under Construction
Most prime lenders (big banks) do not like lending on properties that are under significant renovation—especially if part of the house is unlivable during construction.
Even if she had equity, the bank would likely say, “Come back when the work is done and inspected.”
- Need for Speed
She needed funds fast to keep the renovation schedule moving and avoid contractor delays. Private mortgages can fund in days, whereas bank refinances can take weeks or months.
- Income & Qualification
Sometimes borrowers don’t qualify for additional prime financing due to income documentation issues, debt service ratios, or existing obligations.
Maria might have been temporarily stretched because she was living through construction and carrying costs.
Why a Private Mortgage Was the Solution
A private lender doesn’t care as much about income or temporary construction issues. They focus on the property value and available equity.
Her existing lender allowed her to register a second mortgage behind her existing first mortgage, leaving her low-rate first mortgage untouched.
The private funds gave her the flexibility to complete the project, raise the property value, and then refinance the entire structure with an alternative lender once it was complete.
Bottom Line
Maria needed a private mortgage because:
- Her bank wouldn’t advance funds mid-renovation.
- She didn’t want to break her first mortgage (and pay penalties).
- She needed quick, flexible funding to finish a value-boosting project.
The private lender agreed to an 85% LTV loan, which gave her the funds she needed but also left her with a high-interest payment every month.
We built an exit strategy before she signed: once the renovations were complete and the property value jumped to $750,000, we refinanced with an alternative lender, paying out both her first mortgage and the private second. Eighteen months later, Maria qualified for a prime lender mortgage at an even lower rate.
Had we not mapped that exit strategy from day one, Maria might have ended up stuck paying high interest for years—or worse, facing a forced sale.
How Realtors and Clients Can Use This Knowledge
- For Realtors:
- If your client is talking about taking on a private mortgage, ask about their exit strategy before they sign.
- Partner with a mortgage agent early to make sure there’s a viable path back to traditional financing.
- Use this information when listing properties: some buyers will need private financing, and knowing the LTV limits can help set expectations.
- For Clients:
- Don’t think of a private mortgage as a long-term solution. Use it as a stepping stone.
- Be realistic about how much equity you need. If you’re already maxed out, you might need to scale down your project or adjust your timeline.
- Talk to your mortgage agent (that’s me!) about the best way to exit before you even sign the private loan papers.
Allen’s Final Thoughts
A private mortgage can be a lifesaver in the right situation—whether it’s saving a deal that’s about to collapse, funding urgent renovations, or helping you through a credit recovery period. But borrowing to the max (85% LTV or more) without a clear exit plan is risky business.
Think of it like climbing a ladder: the higher you go, the more careful your next step needs to be. Your private mortgage is just one step; the goal is always to climb down the cost ladder—from private, to alternative, and finally, to prime financing.
As your mortgage agent, I’m here to help you build that ladder safely. I’ll review your private mortgage terms, calculate your exit options, and connect you with lenders who fit your unique situation. Whether you’re a realtor trying to keep a deal alive or a homeowner trying to make your money stretch, I’ve got strategies and tools to guide you every step of the way.
Because at the end of the day, my job isn’t just to get you a mortgage—it’s to get you on track to the right mortgage, for the right reasons, at the right time.
