Private Mortgage Lenders in Toronto: What to Know Before You Sign

Private mortgages have a reputation, and some of it is earned. They are the most expensive money in the market, and the people who need them are usually the people least able to shop calmly. That combination attracts some operators you would not want near your house.

They are also, used correctly, a genuinely useful instrument — and sometimes the only thing standing between you and losing a deposit or a home. Both of those things are true. Here is how to tell which situation you're in.

The short answer

• Private lending is equity-based, not income-based.
• It is short-term— typically about a year — and it is expensive.
• It is a bridge to somewhere. If nobody has explained where, walk away.

What a private lender actually is

Not a bank. A private lender is an individual, a group of investors, or a mortgage investment corporation (MIC) lending their own capital against real property. They are not federally regulated the way a bank is, which is precisely why they can do things banks can't — and why the protections are different.

The consequence that matters: they are not bound by the federal stress test. They are lending against your property, not your paycheque. Which is why a file that a bank's system auto-declines can fund privately in days.

What they actually care about

In rough order:

• Equity. The single biggest factor. How much of the home do you genuinely own? Private lenders lend to a loan-to-value ceiling, and in a market like Toronto they are asking what this property realistically sells for if things go wrong.
• The property itself. A standard house in a liquid Toronto neighbourhood is straightforward. Something unusual, rural, or hard to sell is not.
• The exit. How does this loan end? This is the whole deal.
• Income — somewhat. They want to see you can service the payments. But it is nothing like an A-lender's documentation exercise.

Credit score matters far less than you'd expect. Equity plus a credible exit beats a bruised score most of the time.

What it costs — honestly

More than a bank. Considerably. Pricing is set per deal — by your equity position, the property, the term and the risk — so any article quoting you a specific private rate is guessing. What you should expect structurally:

• A higher interest rate than any A or B lender will offer.
• A lender fee and usually a brokerage fee, often deducted from the advance rather than paid up front.
• Legal costs, typically yours.
• Often interest-only payments — which keeps monthly cost down but means you're not reducing principal.

Every one of those must be disclosed to you in writing before you commit. Ours always is. If a number appears at the lawyer's office that nobody mentioned, that is not a fee — that is a warning.

When it's genuinely the right call

• The clock. You have a firm closing and financing fell through — see what to do when you're declined. Private money funds in days. This is the classic Toronto case, and it's sharpened by bidding wars where buyers waive the financing condition.
• The file needs time. Bruised credit, a recent proposal, self-employed income that needs another year of returns. Private carries you 12 months while the fix happens.
• Equity-rich, income-poor. Substantial equity, income that doesn't fit a bank's template.
• Property or tax pressure. Arrears where the alternative is losing the home outright.
• Bridging a sale — though a conventional bridge financing product is usually cheaper if you qualify.

The one question: what's the exit?

A private mortgage is a bridge. Bridges go somewhere. Before you sign, you should be able to say in one sentence how this ends — usually one of:

• Refinance to a B-lender in 12 months once credit has recovered.
• Refinance to an A-lender once two years of self-employed returns exist.
• Sell the property.
• Pay it out from a known, dated source.

If nobody has walked you through the exit, you are not being sold a bridge. You are being sold a renewal. That's the tell. A private lender who is comfortable with you refinancing away in a year is behaving properly; one whose plan is for you to stay is making money from your problem.

Ask directly: "What has to be true in 12 months for me to leave this loan?" A good answer is specific. A vague one is your signal.

How to protect yourself

• Get every cost in writing, in advance. Rate, lender fee, broker fee, legal, renewal terms, prepayment.
• Use your own lawyer. Independent legal advice is not a formality here.
• Understand first vs second position. A second mortgage sits behind your existing one and is priced accordingly.
• Know the renewal terms before you need them. What happens at month 12 if you're not ready?
• Check the brokerage is licensed. Ours is FSRA Brokerage #13737, verifiable on the public register.
• Be suspicious of urgency that isn't yours. Your deal may be urgent. That is not a reason to skip reading.

The bottom line

A private mortgage is a tool with a specific job: buy time, at a price, with a way out. Used for that, it saves deals and houses. Used as a destination, it is the most expensive mortgage you'll ever carry.

We place private files across Toronto every week — and we will tell you when the honest answer is "wait six months and fix this instead." Explore private mortgages in Toronto, or talk to us about your file today.

Private mortgage rates, fees, LTV limits and terms are set per deal and vary widely by lender, property and borrower; no rate or fee is quoted here because none would be accurate for your file. Private lenders are generally not federally regulated and are not bound by the federal stress test. All costs must be disclosed in writing before you commit, and independent legal advice is strongly recommended. General information, not mortgage advice for your specific situation.