How Private Mortgages Work in Ontario
A thorough, plain-language guide to private mortgage lending — what it is, when it makes sense, how lenders evaluate deals, what it costs, and what to expect from start to close.
The basics
What is a private mortgage?
A private mortgage is a loan secured against real property, funded by an individual investor or a private lending company rather than a bank, credit union, or government-backed lender.
In Ontario, mortgages can be funded by three types of lenders: A-lenders (major banks and some credit unions that follow strict federal guidelines), B-lenders (trust companies and monoline lenders with somewhat more flexible criteria), and private lenders. Private mortgages fall entirely outside the regulated bank lending system — the lender is using their own capital, and each deal is evaluated individually.
Because private lenders aren't constrained by OSFI stress tests or income verification rules, they can serve situations that banks must decline. The trade-off is cost: private mortgages carry higher interest rates and upfront fees that reflect the additional risk the lender accepts.
Private mortgages are always registered on title — the lender has a legal claim against your property. This is what secures the loan. If you don't repay, the lender has recourse through the property (subject to Ontario's Mortgages Act), not just against you personally.
Private mortgages are a legitimate and regulated part of Ontario's mortgage market. Mortgage brokerages arranging private mortgages must be licensed by the Financial Services Regulatory Authority of Ontario (FSRA).
Bank / Institutional
- Income qualification (stress test)
- Minimum credit score thresholds
- Maximum amortizations (25–30 years)
- Slower approval timelines
- Lower interest rates
- Regulated by OSFI guidelines
Private Lender
- Equity-focused evaluation
- No fixed credit score cutoffs
- Short terms (typically 1–2 years)
- Faster closing (often 5–10 business days)
- Higher interest rates
- Regulated by FSRA (Ontario)
Common use cases
When private financing is used
Private mortgages aren't a one-size-fits-all solution. Below are the situations where they're most commonly applied — and why institutional lending typically falls short in each.
Second Mortgages
CommonA second mortgage sits behind your existing first mortgage on title. It lets you access built-up equity without breaking your first mortgage contract, avoiding penalties or rate changes.
Equity Take-Out
CommonConvert a portion of your property equity into usable cash for renovations, debt consolidation, investment, or business capital — when institutional lenders won't approve the amount you need.
Bridge Financing
Short-termShort-term funding that bridges the gap between purchasing a new property and receiving the proceeds from selling your current one. Typically 1–6 months in duration.
Power of Sale Prevention
UrgentWhen a lender has issued a notice of sale or you're in arrears on your mortgage, a private mortgage can pay out the lender in default and stop the proceedings — buying time to stabilize.
Self-Employed Borrowers
Alt-DocBusiness owners and contractors often have income that doesn't fit standard T4 verification. Private lenders can assess based on bank statements, business revenue, or stated income with reasonable documentation.
Credit Challenges
CreditFollowing bankruptcy, consumer proposal, missed payments, or collections, institutional lenders may decline even with substantial equity. Private lenders evaluate the full picture, not just the credit score.
Commercial & Construction
CommercialPrivate financing for commercial properties, development projects, land purchases, and construction draws where conventional lenders require stabilized income the property hasn't yet achieved.
Underwriting
How private lenders make decisions
Private lenders evaluate each deal on its own merits. Understanding what they focus on helps you prepare a stronger application and set realistic expectations.
Equity is the primary underwriting factor
The most important question a private lender asks is: if this borrower stops paying and I need to enforce, is there enough equity in the property to recover my principal? Strong equity can offset weak income documentation, impaired credit, or an unusual property type.
Exit strategy is evaluated seriously
Private mortgages are short-term by design. Lenders want to understand how you will repay or refinance before the term ends. A credible exit — refinancing to a bank once a credit issue resolves, receiving proceeds from a business sale, or selling the property — reduces lender risk.
Income and credit inform, but don't gate
Unlike institutional lenders, private lenders don't have hard cutoffs on income or credit. They use this information as context. A borrower with a recent consumer proposal and 65% LTV is evaluated differently than one with the same profile at 80% LTV.
Property quality affects terms
Location, condition, marketability, and property type all matter. A detached home in a major Ontario city is easier to lend against than a rural property or a unique commercial asset. Properties that are difficult to sell in a default scenario command higher rates or lower maximum LTVs.
Key criteria private lenders assess
Loan-to-Value (LTV)
Typically up to 75–80% of the property's appraised value. Lower LTV means less risk to the lender, which generally produces better rates and terms.
Property Type & Location
Residential properties in established Ontario markets are preferred. Rural, rural-residential, or specialized properties may attract lower maximum LTVs or higher rates.
Exit Strategy
Lenders want a realistic plan for repayment at term end: sale of property, refinancing to an institutional lender once qualifying improves, or income from an event (closing of business, inheritance, etc.).
Term Length
Most private mortgages are structured for 1–2 years. This short term is intentional — it keeps the lender's capital accessible and encourages borrowers to return to conventional lending.
Interest Structure
Interest-only payments are common. This reduces the monthly payment obligation and is suitable for short-term bridge situations where the borrower plans to repay principal at term.
Rates shown are indicative ranges for general information only. Your actual rate will depend on property type, location, loan-to-value ratio, borrower profile, and other underwriting factors. Rates are subject to change without notice.
Transparency
Understanding the costs
Private mortgages involve rates, fees, and legal costs that are different from bank mortgages. Here is what each cost is, why it exists, and what ranges to expect.
Typical rate ranges — Ontario private mortgages
Best private rates — reserved for high-equity, well-located residential properties with clear exit strategies.
Second position carries more risk for the lender. Rate reflects priority behind the first mortgage.
Rural properties, commercial assets, very high LTV, urgent timelines, or complex credit situations.
Rates shown are indicative ranges for general information only. Your actual rate will depend on property type, location, loan-to-value ratio, borrower profile, and other underwriting factors. Rates are subject to change without notice.
Why private mortgage costs are higher
Private mortgage rates are higher than bank rates because private lenders are accepting risks that banks are not willing to take. The higher rate compensates the lender for:
- Lending to borrowers or properties that don't qualify institutionally
- Shorter terms that require more frequent re-underwriting
- Smaller loan sizes that are less efficient to administer
- The illiquidity of holding a registered mortgage
- Credit risk, income uncertainty, or complex property types
The fees — lender fee, broker fee, legal, appraisal — are one-time costs at origination. When evaluating a private mortgage, calculate the total cost of borrowing: add up all fees plus the total interest paid over the term. Use our cost estimator to model your scenario.
Fee breakdown
Lender Fee
Typically 1%–3% of the mortgage amount
Paid to the private lender for originating the loan. This is a one-time cost usually deducted from the advance at closing.
Broker Fee
Typically 1%–2% of the mortgage amount
Paid to the mortgage brokerage for sourcing, structuring, and placing the deal. Disclosed in writing and approved by you before any commitment.
Legal Fees
Varies — typically $1,500–$3,000+
Both the lender and borrower require independent legal representation. Costs depend on deal complexity, property type, and whether the transaction involves multiple mortgages.
Appraisal Fee
Typically $350–$700+ for residential
An independent appraisal confirms property value. Required by most private lenders. Commercial or rural properties may require specialized appraisers at higher cost.
Title Insurance
Typically $200–$400
Protects against title defects, fraud, or encumbrances discovered after closing. Usually required by lenders.
All mortgage transactions are subject to lender approval, satisfactory appraisal, and legal review. Past results do not guarantee future outcomes.
Step by step
The process from start to close
Here is what to expect when arranging a private mortgage through a licensed brokerage — from first contact to funded.
Initial consultation
You share your property details, current mortgage situation, the amount you need, and your timeline. No credit check at this stage. We assess whether private financing is a realistic option.
Scenario review and lender matching
We review your LTV, property, and exit strategy. If viable, we identify appropriate private lenders from our network whose criteria fit your situation.
Commitment issued
The lender issues a mortgage commitment letter with specific terms: rate, amount, fees, covenants, and conditions. You have time to review and ask questions before accepting.
Appraisal and legal
An independent appraisal is ordered. Both parties retain legal counsel. The lender's lawyer prepares the mortgage documentation.
Signing and funding
You sign the mortgage documents with your lawyer. Funds are advanced through the legal trust accounts on the agreed closing date. Fees are deducted from the gross advance.
Servicing and renewal planning
Monthly interest payments begin. We recommend starting renewal or refinancing discussions 3–4 months before your term expires to avoid default on maturity.
Typical timeline
From initial consultation to funding, a straightforward private mortgage can close in 5–15 business days. Complex deals, commercial properties, or situations requiring additional documentation may take longer. Urgent scenarios are handled as quickly as the legal and appraisal process permits.
Definitions
Key terms to understand
These are the terms you will encounter in any private mortgage transaction. Understanding them helps you read a commitment letter, ask the right questions, and make an informed decision.
Questions answered
Common questions
Answers to what borrowers most often ask about private mortgages in Ontario.
Ready to find out if a private mortgage is right for you?
Tell us about your property, your situation, and what you need. We'll review it and give you a direct, honest assessment — whether we can help, what it would look like, and what it would cost. No obligation. No credit check at this stage.
All mortgage transactions are subject to lender approval, satisfactory appraisal, and legal review. Past results do not guarantee future outcomes.