The Canadian Private Mortgage Guide

What a private mortgage is

A private mortgage is a loan secured against real estate from a lender that is not a bank, credit union or federally regulated institution — often an individual investor or a mortgage investment corporation. Private lenders focus mainly on the property's value, the equity available and how the loan will be repaid.

In Ontario, private mortgages are commonly arranged through licensed mortgage brokerages, which are regulated by FSRA.

When private mortgages are used

Typical situations include:

• Bridging the gap between buying a new home and selling the current one
• A bank decline because of credit, income documentation or property type
• Consolidating debt or stopping a power-of-sale while a longer-term plan is arranged
• Short-term financing while credit or income history is rebuilt
• A time-sensitive purchase where a conventional approval cannot be completed in time

Qualification and loan-to-value (LTV)

Private lenders qualify primarily on equity. LTV is the loan amount divided by the appraised value. Our current private first-mortgage programs go up to 75% LTV, and second mortgages are assessed on combined LTV (CLTV) across all mortgages on the property.

Lenders still review credit, income, property condition, location and marketability. A rural or unusual property may attract a lower LTV or no offer.

Interest, fees and total cost

Private mortgage rates are higher than bank rates, and there are usually several one-time costs. Compare the total cost over the term, not just the rate.

Term and renewal

Private terms are usually 6 to 24 months. Renewal is not guaranteed: the lender may decline to renew, change the rate, or charge a renewal fee. Plan the exit from the start rather than relying on renewal.

Exit strategy

A credible exit is the most important part of a private mortgage. Common exits:

• Refinancing to a B-lender or A-lender once credit or income is documented
• Selling the property, or the other property in a bridge scenario
• Receiving a known sum, such as a business sale, inheritance or settlement

Risks

Understand these before signing:

• Higher total cost than conventional financing
• The exit may take longer than planned, adding interest and renewal fees
• Missed payments can lead to power-of-sale proceedings
• Property values can fall, reducing equity available to refinance

Alternatives to consider first

• A B-lender mortgage or refinance
• A HELOC, where income and credit qualify
• A bank bridge loan when a firm sale agreement exists
• Changing the transaction timeline or selling other assets

Questions to ask before you sign

• What is the total cost in dollars over the full term, including every fee?
• Is the mortgage open, and after what point can I repay without penalty?
• What happens at maturity if I cannot refinance yet?
• Is there a renewal fee, and is renewal at the lender's discretion?
• What exactly is my exit plan, and how realistic is its timing?
• Have I received independent legal advice?