Private mortgage lenders in Canada operate outside the regulated banking system and can provide financing in situations where banks, credit unions, and B-lenders decline. They make lending decisions primarily based on the property's equity rather than the borrower's credit score or income. Private mortgages are a legitimate — if expensive — tool for borrowers in challenging situations. Understanding when they make sense, what they cost, and how to exit them is critical knowledge for any Canadian navigating a difficult mortgage situation.
A private mortgage is a loan secured by real estate provided by a non-institutional lender. Private lenders include: individual investors, mortgage investment corporations (MICs), syndicates, and private lending companies. They are not regulated by OSFI or provincial banking authorities in the same way as banks and credit unions. Each lender sets their own criteria, rates, and terms.
Private lenders fund their loans from private capital (their own money or pooled investor capital), not from deposits like banks do. This makes them more expensive to borrow from but far more flexible in their approval criteria.
Recent bankruptcy (discharged), consumer proposal, collections, significant missed payments — borrowers with severely bruised credit often cannot qualify at A or B lenders. Private lenders care about equity, not credit history.
Self-employed borrowers who cannot document income through NOAs, new businesses without 2 years of history, foreign income, or income from unconventional sources may not pass institutional qualification even when cash flow is strong.
Rural land, farms, commercial-residential mixes, properties with structure issues, rural properties without year-round road access — many institutional lenders decline these. Private lenders evaluate the property's value and marketability individually.
Need to close on a purchase before your current home sells? Private lenders can fund in days rather than weeks. The short-term, high-cost nature is acceptable when the need is temporary.
If your mortgage is in default and the lender has begun power of sale proceedings, a private lender may fund immediately to stop the proceeding — buying you time to sell the property properly or reorganize your finances.
Private lenders can fund development projects, renovation plays, and non-income-producing properties that banks decline.
Private mortgage rates are significantly higher than institutional rates. Typical ranges:
These rates reflect the higher risk the private lender accepts by qualifying based primarily on equity and lending to situations institutional lenders decline. They also reflect the unregulated, private capital cost structure of the lender.
Beyond the interest rate, private mortgages carry significant fees:
Private mortgages typically have very short terms:
The short term is intentional from the lender's perspective — they want regular renewal points to reassess the risk and renew rates. From the borrower's perspective, the short term also provides an exit point. Most borrowers using private mortgages plan to improve their situation (repair credit, document income, sell the property) during the term and then refinance into institutional lending at renewal.
Never take a private mortgage without a clear, realistic exit strategy. The three most common exits:
Use the 1-year term to: repair credit (pay collections, rebuild payment history), document 2 years of self-employment income, clear bankruptcy from credit history, or resolve income issues. At renewal, apply to a B lender. After 1–2 more years, move to an A lender.
If you are purchasing a property you plan to renovate and sell, or a property you cannot afford long-term, take a private mortgage knowing the exit is the sale proceeds.
In markets with strong appreciation, property value growth may allow you to qualify for a conventional refinance within 1–2 years as LTV improves and lenders become more comfortable with the property's value cushion.
Private lenders do not lend beyond certain loan-to-value thresholds. Typical maximums:
The equity in your property is the private lender's primary security. They need enough buffer that if they must sell the property quickly in a default scenario, they can recover their full investment after real estate commissions and legal costs.
Work with a licensed mortgage broker who has experience in private lending. Do not approach unregulated private lenders directly without broker guidance — the risk of predatory terms, undisclosed fees, or fraudulent transactions is real. A good broker will:
Private mortgage fraud is a real risk in Canada. Always use a licensed mortgage broker and independent legal counsel.
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