Private mortgage lenders fill a gap in the Canadian mortgage market — providing financing when banks, credit unions, and other traditional lenders say no. They are a tool, not a solution, and understanding the costs and risks is essential.
How private mortgages work
- Borrower applies — Usually through a mortgage broker
- Property appraisal — The lender assesses the property value (this is their primary security)
- Approval based on equity — Income and credit score matter less; the loan-to-value (LTV) ratio matters most
- Short-term loan — Typically 1-2 years
- Higher rates and fees — Compensation for the higher risk
- Exit strategy required — You need a plan to refinance with a traditional lender before the term ends
Private vs traditional mortgage comparison
| Feature | Traditional Lender (Bank/Credit Union) | Private Lender |
|---|---|---|
| Interest rates | 4%–6% | 7%–15%+ |
| Upfront fees | $0–$500 | 1%–3% of loan amount |
| Approval criteria | Income, credit score, debt ratios | Property equity (LTV) |
| Term length | 1–5 years (renewable) | 6 months–2 years |
| Amortization | 25–30 years | Often interest-only |
| Regulation | OSFI, bank regulations | Provincial mortgage broker laws |
| Speed of approval | 2–4 weeks | 3–10 days |
| Minimum credit score | 600–680+ | No minimum (case by case) |
When private mortgages make sense
Short-term bridge financing
- You are buying a new home before selling your current one
- A private mortgage bridges the gap for 3-12 months
Self-employment with limited documentation
- Traditional lenders want 2 years of tax returns
- Private lenders may approve based on property equity alone
Credit issues
- Recent bankruptcy, consumer proposal, or poor credit history
- Private lenders look at the property value, not just your credit
Unique properties
- Rural properties, mixed commercial-residential, or unconventional homes that traditional lenders won’t finance
Fast closing needed
- You need to close in days, not weeks
- Private lenders can approve and fund quickly
Renovations before refinancing
- Buy a fixer-upper, renovate to increase value, then refinance with a bank at the higher appraised value
Costs of a private mortgage
Example: $400,000 private mortgage at 10%
| Cost | Amount |
|---|---|
| Lender fee (2%) | $8,000 |
| Broker fee (if applicable) | $4,000 |
| Legal fees | $2,000–$3,000 |
| Appraisal fee | $300–$500 |
| Monthly interest (interest only) | $3,333 |
| Annual interest cost | $40,000 |
| Total first-year cost (interest + fees) | ~$54,000 |
Compare this to a traditional mortgage at 5%: annual interest on $400,000 is $20,000 — less than half the private mortgage cost.
Risks to understand
1. Renewal risk
Private mortgages are short-term (1-2 years). If you cannot refinance with a traditional lender at renewal, you may be forced to renew at another high private rate or sell the property.
2. Higher total cost
The combination of fees, higher rates, and short terms makes private mortgages far more expensive than traditional financing.
3. Power of sale/foreclosure
If you default, the private lender can exercise power of sale quickly. They are often less willing to negotiate than banks.
4. Unregulated lenders
While mortgage brokers are regulated, individual private lenders may not be. Always work through a licensed mortgage broker.
How to find a reputable private lender
- Work with a licensed mortgage broker — They access multiple private lenders and know who is reputable
- Verify the lender’s track record — Ask for references and past borrower experiences
- Read every document carefully — Have a real estate lawyer review before signing
- Understand all fees upfront — Some private lenders add hidden fees
- Get the exit strategy in writing — Know what happens at renewal
Exit strategy: the most important piece
Before taking a private mortgage, you need a clear plan to refinance:
- Improve your credit score — Work on building your score during the private term
- Document your income — Start keeping clean records for traditional lender applications
- Build equity — Pay down the balance and/or increase property value through renovations
- Set a timeline — Work with a mortgage broker to establish when you will qualify for a traditional mortgage
Bottom line
Private mortgages are an expensive but sometimes necessary tool. They should always be temporary — a bridge to get you into a traditional mortgage. Never enter a private mortgage without a clear exit strategy, and always work with a licensed mortgage broker and real estate lawyer.
Use our mortgage calculator to compare payment scenarios at different rates.
Private mortgage lenders vs traditional lenders
| Feature | Bank/Credit Union (A-lender) | B-lender (trust company) | Private lender (MIC/individual) |
|---|---|---|---|
| Interest rate | 4.5–6.5% | 5.5–8% | 7–15%+ |
| LTV maximum | 80% (conventional) | 75–80% | 65–75% |
| Credit requirement | 680+ | 550–680 | No minimum (equity-based) |
| Income verification | Strict (T4, NOA) | Flexible | Minimal |
| Approval speed | 1–3 weeks | 1–2 weeks | 2–5 days |
| Lender fees | 0–0.5% | 0.5–1.5% | 2–4% (plus broker fee) |
| Best for | Standard buyers | Self-employed, recent issues | Bridge financing, urgent closings |
Exit strategies from private mortgages
A private mortgage should almost always have a planned exit:
- Improve credit: Use the 1–2 year term to pay down debts, establish on-time payment history, and qualify for a B or A lender mortgage at renewal
- Sell the property: If the purchase was speculative or transitional, sell before the private term expires
- Refinance with equity: If property value has increased, the improved LTV may qualify for conventional financing
- Extend with the private lender: Some private lenders will renew — but rates remain high; only use this if the exit strategy is still pending
Frequently asked questions
Are private mortgage lenders regulated in Canada? Mortgage brokers and agents who arrange private mortgages must be licensed in their province (FSRA in Ontario, FICOM in BC, etc.). Individual private lenders (lending their own money) are not directly regulated the same way as banks. Always use a licensed mortgage broker and real estate lawyer when working with private lenders — review all documents before signing.
What is a MIC in Canada? A Mortgage Investment Corporation (MIC) is a pooled investment vehicle that funds private mortgages. Investors buy shares in the MIC; the MIC lends the pooled capital to borrowers at higher rates. MICs are registered under the Income Tax Act and must distribute at least 100% of their net income to shareholders annually. This makes them a common investment option for individuals seeking real estate income without directly owning property.