The Private Mortgage Guide (Canada)

A private mortgage is a short-term loan secured against your property and funded by non-bank private capital: an individual lender, a Mortgage Investment Corporation (MIC), or a private company¹. The defining feature is what the lender underwrites. A bank underwrites your income, your credit score and your debt ratios; a private lender underwrites your home equity first, with income and credit as secondary considerations.

That difference is why private financing can fund files a bank declines, and why it costs more. It is not a cheaper mortgage, and it is not meant to be permanent. Think of it as a bridge: a deliberate, short stay in higher-cost financing that solves a problem now and buys you the 12–18 months needed to qualify for a regular bank mortgage again. Used that way, it is a precise tool. Used without a plan, it is expensive. This guide walks through how they work, what they really cost, who qualifies, the risks, and the exit. For the service itself, see our private mortgage page.

The mechanics are simpler than a bank's. A private lender looks at three things: the property (type, location, marketability and current value from an appraisal), your position (a first mortgage in first place on title, or a second behind an existing first), and your exit (the plan to repay or refinance by the end of the term). If there is enough equity and a credible exit, the deal can move quickly.

Terms are short, usually 6 to 18 months, and often interest-only, which keeps the monthly payment down while the balance stays put until you refinance or sell. Some private loans have no regular payments at all and add the interest and fees to what you owe at the end¹, so read the terms closely. Because the lender's security is your equity, the loan-to-value ceiling matters more than your pay stubs. On a clean file a private lender can sometimes issue a commitment within a few days, with funding following once the appraisal, legal work and conditions are done, often within one to three weeks.

Private pricing is risk- and position-based and always higher than a bank's. As a general, illustrative guide (not today's rates or a quote): first mortgages have often run around 7–10% and second mortgages around 9–13%. For a data point, CMHC reported that the largest private mortgage lenders averaged about 9.6% on single-family lending at roughly 58% loan-to-value in Q3 2025². Your actual rate depends on loan-to-value, property, position and the overall file, and pricing moves with the market.

The rate is only part of the cost. Expect a lender fee of roughly 1–2% and a broker fee of roughly 1–2% of the loan (illustrative), plus legal fees and an appraisal. A quick illustration: a $100,000 second mortgage for 12 months at an assumed 10% interest-only, with a 2% lender fee, a 1.5% broker fee, and about $1,900 in legal and appraisal costs, runs roughly $15,400 in total cost of borrowing over the term. Always look at the all-in cost, not the headline rate. In Ontario, a brokerage must disclose its fees in writing and include them in the cost of borrowing and APR it gives you³; insist on every figure in writing before you sign.

Position drives both risk and price. A first mortgage sits in first place on title, so if anything goes wrong it is repaid first. That makes it the safest spot for a lender, so it prices lowest and lends to a higher loan-to-value, commonly up to about 75% on a private first (lender limits vary).

A second mortgage sits behind your existing first. It is riskier for the lender (the first gets paid before the second), so it prices higher, and many private lenders cap the combined loan-to-value, both loans together, at around 75–85% of the property's value depending on the property and market. The reason to use a private second is simple: you can draw equity without breaking a low first-mortgage rate you want to keep. For example (illustrative), if your first is at 2.9% and you need $80,000 for a year, a private second can cost less overall than refinancing the whole mortgage at a higher current rate and paying a penalty to break it. See how second mortgages work.

Private capital comes from two main sources, and the difference matters. A MIC (Mortgage Investment Corporation) is a company that pools money from many investors and lends it out as mortgages, usually with formal underwriting and predictable processes. A MIC is not a bank and does not take deposits; in Ontario, the brokerage arranging your MIC mortgage must be licensed by FSRA⁴. Because a MIC answers to its investors and runs on set processes, it tends to be less likely than an individual to change terms late in a deal, and for most borrowers that reliability is worth a lot.

An individual private lender is a person lending their own money. They can be faster and more flexible on an unusual file, and sometimes cheaper, but quality varies, and a deal can fall apart if one person changes their mind. Neither is supervised the way a bank is, so vetting matters. The right source depends on your file: speed, property type, position, and how unconventional the story is. A broker who works with both can match you to the source most likely to close.

Qualification is equity-first. The main test is loan-to-value (how much equity remains after the new loan), plus the property type, your position, and a credible exit plan. Income and credit still help, but many private files are arranged with limited income documentation¹, which is why they can work for self-employed and newcomer borrowers.

The documents are far lighter than a bank's: government ID, a current mortgage statement and property details, a recent appraisal (or the lender orders one), proof that property taxes are current, and a note on your exit plan. What actually decides the file is the equity and the plan. A private lender needs to see both the security and the way they get repaid. If you are self-employed, a newcomer, or rebuilding credit, this can be the difference between a decline and a fast approval.

It helps to see the whole ladder. An A-lender (a bank) offers the lowest rates but the strictest rules: income, credit and stress-tested ratios⁵. A B-lender is an alternative lender, often a regulated trust company or smaller bank, that still checks income and credit but flexes on ratios and story, at a rate premium over A pricing (illustratively about 0.5–1.5%, plus a lender fee). A private lender goes furthest (equity-based, fast, and open to files a B-lender won't touch) at the highest cost.

Most borrowers who start in private are aiming to climb back up the ladder: private today, B-lender in a year, A-lender after that, as the file heals. The point of choosing private is never to stay there; it is to solve a problem a bank can't and set up the move back to cheaper money. FSRA notes that your broker should be able to explain why you need a private mortgage and don't qualify for a lower-cost prime or alternative loan¹. Our A vs B vs private and alternative lending pages go deeper.

A private mortgage carries real risks, and an honest guide names them. The cost is higher, the term is short, and renewal is not guaranteed: a private lender can decline to renew, so you must be ready to refinance or sell by maturity. Missed payments can trigger enforcement. In Ontario, a lender with a power of sale can serve a notice of sale once a payment has been in default for at least 15 days, and cannot sell until at least 35 days after that notice⁶; you can stop the process by paying the arrears and the lender's costs before the sale. If the property value falls, refinancing gets harder, and if the file hasn't qualified for a bank by term end, you can be stuck.

Each risk has a mitigation. Keep the term short so you pay the premium only while you need it. Size the loan conservatively against a current appraisal so there is equity room for the exit. Stress-test the payment before funding. And most important, set the exit on day one, with a back-up plan¹, and track it every quarter rather than hoping it works out. A private mortgage managed this way is a calculated bridge; one left to drift is where borrowers get hurt.

The exit plan is the whole point. It is the specific, written plan for what fixes the file so a B- or A-lender will refinance you next. If the problem is bruised credit, the plan schedules the payment-history and utilization changes that lift your score into B or A territory. If it's self-employed income, the exit is timed to two clean Notices of Assessment. If it's CRA or property-tax arrears, the private money clears them and the refinance re-prices you once you're clean.

Keep the A-lender rules in view: a bank refinance is capped at 80% of your home's value⁷, so the exit only works if enough equity remains. Done well, the exit turns a higher-cost private bridge into a far cheaper bank mortgage within 12–18 months. The discipline is tracking the file against that plan every quarter, so the day you qualify, you move. Anything past 24 months in private financing usually means a window was missed. When you set up private financing, insist that the exit is part of the original conversation, not an afterthought.

If a bank or B-lender has declined you but you have real equity, or you have a deadline the bank can't meet, a private mortgage may fit. The right process is: confirm your equity with a current value, decide first vs. second position, get the full cost of borrowing in writing, and lock the exit plan before you sign anything.

Mortgage Squad Advisors is an FSRA-licensed Ontario brokerage (#13737). We arrange private first and second mortgages in Ontario; files outside Ontario are handled by licensed mortgage professionals in your province through our partner network. We disclose every fee up front and map the way back to bank financing from day one. Start on our private mortgage page, compare it against your other options in our private mortgage vs. the alternatives guide, or get a no-obligation assessment, with no bureau pull to begin.