Can you get a mortgage with property tax arrears?
Yes — but not from a bank, and the mortgage’s job is usually to pay the arrears off. Unpaid municipal property taxes are a priority lien that sits ahead of your mortgage, so A-lenders generally won’t refinance until they’re cleared. An alternative lender, though, will lend against your home’s equity specifically to clear them: the mortgage funds, your lawyer pays the municipality, and the tax account is brought current.
The deciding factor isn’t your income or credit — it’s your equity. If you own a home with room in it, there is usually a path. This guide answers the common questions on qualifying with tax arrears. For the service, see our property tax arrears mortgage page. General information, not legal advice.
Why a bank won't, but an alternative lender will
When a lender funds a mortgage, it registers a charge and needs a clean priority behind it. Municipal tax arrears — a priority lien ahead of the mortgage — threaten that, so an A-lender’s underwriting won’t allow the deal until the taxes are cleared. That’s the catch-22: you need money to clear the taxes, but the cheapest lender won’t lend while they’re there.
Alt-A / B-lenders and private lenders break the loop. They’ll refinance to pay the arrears out — underwriting your equity rather than requiring clean title first — so the same financing that clears the taxes is the financing you qualify for. A B-lender is cheaper where you have some provable income and time; a private lender is faster where a certificate is registered or a deadline is close.
The equity-first qualification
Qualifying is driven by how much equity remains after everything. Lenders size the new mortgage as your existing balance plus the full arrears (base taxes + penalty + interest) plus costs, and keep the total under a conservative loan-to-value — generally about 80% at alt-A, or 65–75% on private (illustrative, subject to lender and file). Income and credit still help, but they’re secondary; many of these files are for homeowners a bank has already declined.
A quick illustration: a $650,000 home with a $380,000 first mortgage has roughly $75,000–$140,000 of accessible room at those ceilings — usually more than enough to clear typical arrears and often to consolidate other debt at the same time. The more equity you have, the cheaper the pricing and the more lender choice.
Second mortgage vs. full refinance
You don’t always have to break your existing mortgage. If you have a low first-mortgage rate you want to keep (or a penalty to break it), a second mortgage that funds just the arrears — sitting behind your first — is often the cheaper total move. If your first is near renewal or its rate isn’t worth keeping, a full refinance that rolls everything into one mortgage can be simpler.
It’s a total-cost comparison, not a rule of thumb: the second-mortgage route versus the full refinance, including any prepayment penalty, fees and the blended rate. A good broker models both before recommending one.
What it costs, and the exit
You pay a premium over a bank, deliberately and temporarily. Illustratively, an alt-A file prices roughly 100–200 bps over A-lender rates plus a fee; private is higher — CMHC put the single-family private average at about 9.6% in Q3 2025 — plus lender and broker fees. Every fee is disclosed in writing before you commit.
Weigh it against municipal penalty interest (up to ~15% a year in many Ontario municipalities) compounding on the arrears and the equity at risk in a tax sale — for most files with equity and a deadline, clearing the arrears is the cheaper path. And it’s a bridge: once the taxes are clear, your title is clean, and your file stabilizes, the plan is to refinance back toward A-lender pricing, commonly within 12–24 months (a planning target, not a guarantee).
Your next step
If a bank has declined you over property tax arrears and you own a home with equity, a payout mortgage is very likely available — the questions are how much equity you have, how urgent the deadline is, and whether a second mortgage or a full refinance costs less for your file.
Mortgage Squad Advisors (FSRA #13737) arranges these files, discloses every fee up front, and maps the refinance back toward bank pricing. Start on our property tax arrears mortgage page, learn the process in how to stop a property tax sale, or get a confidential assessment — no credit pull to begin.