Updated: April 2025  |  bremo.io financial guides

Private Mortgages in Canada — Last Resort or Smart Move?

When neither banks nor B lenders will approve your mortgage, private lending is often the final option. Private mortgages come with high costs, short terms, and significant risks — but in specific situations, they can be a legitimate and useful tool. Understanding both sides is critical before you consider one.

What Is a Private Mortgage?

A private mortgage is funded by a private individual or a Mortgage Investment Corporation (MIC) — not a bank, credit union, or regulated financial institution. Private lenders are not subject to the same regulatory framework as banks. They set their own rates, terms, and qualifying criteria. They lend based primarily on the equity in the property rather than the borrower's income or credit history.

Who Uses Private Mortgages?

• Borrowers who have been declined by both A and B lenders
• Homeowners in financial distress who need funds quickly
• Real estate investors who need fast financing that doesn't depend on their income
• Borrowers rebuilding credit after bankruptcy or consumer proposal
• People bridging a short-term gap (selling one property, buying another)
• Those with significant home equity but untouchable income (very early retirement, disability, non-traditional income)

How Private Mortgages Work

Private lenders focus almost entirely on the loan-to-value (LTV) ratio — how much equity is in the property. Most private lenders will lend up to 65-75% LTV. If your home is worth $800,000 and you owe $400,000, the LTV is 500% — a comfortable position for a private lender to take on the risk.

Terms are typically short: 6 months to 2 years. The expectation is that the borrower uses this time to fix whatever issue prevents them from qualifying with a mainstream lender.

Private Mortgage Costs

On a $300,000 private mortgage at 12% with 2% in fees, you're spending $36,000 per year in interest plus $6,000-$9,000 in upfront costs. This is the cost of last-resort financing.

When a Private Mortgage Can Make Sense

• Time-sensitive situations: If you need to close a property deal quickly and conventional financing fell through, a private mortgage can fund in days rather than weeks
• Short-term bridge: Buying a new home before selling the old one, with a clear repayment plan
• Preventing foreclosure: Using equity to service debts and stabilize finances
• Credit rebuilding: 1-2 years of timely private mortgage payments can help rebuild credit profile before transitioning to B or A lending

Risks and Red Flags

Private mortgage lending has less regulatory oversight than bank lending. Exercise caution:

• Always work with a licensed mortgage broker you trust when accessing private funds
• Ensure the lender is legitimate and properly registered where required
• Read the mortgage terms carefully — some private mortgages have aggressive default provisions
• Beware of equity stripping — predatory arrangements designed to eventually force you out of your home
• Never agree to "interest-only" private mortgages without a concrete plan to repay or refinance

Transitioning Out of a Private Mortgage

The goal from day one should be to exit the private mortgage as quickly as possible. Common transition strategies:

• Use 12-24 months to build a clean payment history, pay down debts, and document income
• Work with a credit counsellor if credit issues need addressing
• Monitor your credit score monthly and address any errors
• Get pre-approved at a B lender 6 months before your private mortgage term ends so you have options