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 family office. 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 in Canada 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. Because the lender's security is your equity, the loan-to-value ceiling matters more than your pay stubs. A private lender can often issue a commitment in as little as 24–48 hours on a clean file, with funding typically following in about 7–21 days once the appraisal, legal work and conditions are done.

Private pricing is risk- and position-based and always higher than a bank's. As a general, illustrative guide for Canada: first mortgages typically run around 7–10% and second mortgages around 9–13%. These are ranges, not a quote — 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, plus legal fees and an appraisal. A quick illustration: a $100,000 second mortgage for 12 months at 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 — and insist on every figure in writing before you sign. On our service page we disclose the full cost of borrowing up front.

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 — typically up to about 75% on a private first.

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 caps at a lower combined loan-to-value — usually around 80–85% of the property's value including both loans. The reason to use a private second is simple: you can draw equity without breaking a low first-mortgage rate you want to keep. If your first is at 2.9% and you need $80,000, a private second is often cheaper overall than refinancing the whole mortgage at today's rates. See how second mortgages work.

Private capital comes from two main sources, and the difference matters. A MIC (Mortgage Investment Corporation) is a pooled fund with many investors, formal underwriting and predictable processes. A MIC is regulated as a securities issuer — not as a bank — so it answers to regulators and shareholders and is less likely to renege at the last minute or change terms after commitment. 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 regulated 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 carries both in a wide lender network can match you to the source that actually closes.

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 documentation, which is exactly why they 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, newcomer, or rebuilding credit, this is often the difference between a decline and a same-week 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 ratios. A B-lender is a regulated alternative lender that still checks income and credit but flexes on ratios and story, at a modest rate premium of roughly 0.5–1.5% over A pricing. 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. 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 can begin power of sale after a period of default, with a redemption window. 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 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.

Done well, the exit turns a 9–12% 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.

As an FSRA-licensed brokerage (#13737), Mortgage Squad Advisors arranges private first and second mortgages across Canada, discloses every fee up front, and maps 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 — no bureau pull to begin.