Understanding Land Mortgages

Often, mortgages are assumed to be only for the acquisition of residential property. Nevertheless, secured finance can also be obtained against land for a variety of uses in the same way.

The process of obtaining a piece of land loan would be identical to obtaining a home loan. For instance, the same checks would be performed – such as reviewing the candidate’s credit history, appraising the asset, and conducting the requisite legal searches.

However, land mortgages are more specialized than residential mortgages. Thus, lenders might vary, and added conditions may be required to be met.

The rationale for the land purchase and specifying the land’s future usage is a crucial consideration. Once you’ve identified these, exploring the market to find the right financing will be much easier. This article will discuss everything you need to know about land mortgages in Canada. For more detailed insights into Canadian land mortgages, visit Alpine Credits.

What is a land mortgage?

A land mortgage is a type of loan that is used to buy a piece of land. The terms and conditions of these loans are usually determined by how and when the borrower plans to use the land. 

Land bought without a solid building plan may have less stringent restrictions than land purchased by lenders with a clear building strategy in order. The sooner the property is prepared for construction to begin, the quicker it will be to obtain finance with lower interest rates and down payment requirements.

What is the difference between a home loan and a land loan?

Land and home loans ultimately serve the same purpose – getting you a home. However, there are several differences in how both these loans operate. 

  • A home loan is for a building that is completed, under construction, or in the process of being restored and extended. In contrast, a land loan is for the acquisition of a piece of land or plot of land.
  • Home loans are typically for a more extended period – up to 30 years. On the other hand, land loans are typically for a shorter period – up to 15 years.
  • Compared to a regular home mortgage loan, land loans require a more significant down payment.
  • Since land loans have a greater default rate, interest rates are often higher.

How to obtain a mortgage in Canada for the purchase of land

Like any other mortgage, the loan application entails presenting information to a lender about your income, credit history, and the amount of money you have set aside for a down payment. You can receive a mortgage with as little as 25 to 35% down, depending on your creditor and credit score and your plans for building on the site. If you have a decent credit score and plan to construct on the land, you can secure a loan with much less deposit.

If you opt for a private lender, your necessary down payment will be at least 45 to 50 percent, depending on the location of the property and your credit score. However, If you already possess prime real estate in Canada with a lot of equity, you can use it as collateral to decrease or eliminate the down payment requirement.

Why do land mortgages demand higher down payment?

Since the value of the land is substantially lower without buildings, and the risk factors with the loan are higher, land mortgages usually require a larger down payment than mortgages on renovated land.

Since borrowers do not want to lose their houses, residential mortgages are the safest option. However, when it comes to land, the borrower has nothing substantial to lose (other than the vacant land) if they default on the loan – and many of those debtors also have other loans to pay, which will take precedence if the borrower is forced to make difficult decisions as to which loan not to pay in case of poor financial conditions.

Pros and cons of land mortgages

Here are the various pros and cons of land mortgages in Canada.


  • Small enterprises with a land connection may find land mortgages handy.
  • In certain zip codes, buying readily available land is less costly than buying a new home.
  • The absolute amount you will be borrowing will be less than a residential mortgage. 
  • You get the absolute freedom to design your residential or commercial project as per your needs.


  • Land loans are not available from all lenders.
  • Shorter payback durations are available on some land loans.
  • You risk losing your home in the case of default if you use your main dwelling as collateral for a land loan.
  • To submit to a mortgage lender for a land loan, you will have to arrange a study and understand the zoning restrictions.

How is the amount of your mortgage calculated?

The primary amount is borrowed from a lender to purchase a home. In most cases, this sum includes:

  • The home’s buying price, excluding the down payment
  • You’ll need mortgage loan insurance if you don’t have a 20% down payment or if your lender requires it.

The formula for calculating your mortgage payments

Your monthly amount payable is determined by various parameters used by mortgage lenders. When you pay off your mortgage, the money goes into repaying both interest and principle. The principal represents the amount you took from the bank to meet the amount of your house. The amount you give the lender for the borrowing services is known as interest. Moreover, the creditor adds the insurance premiums to your monthly mortgage if you accept optional mortgage insurance.


Financing a piece of land to construct your house is far more complicated than getting a mortgage. Lenders want surveyed borders, and you’ll need to look into zoning and land-use restrictions, utility and road access. The better the land, the less money you’ll need to put down, and the cheaper your financing fees will be.

Seller financing, private lenders, or a home equity loan are the best options to finance a land acquisition. It is best to seek professional help when initiating a financial decision as huge as this.