Private mortgage pros and cons — the honest version.
A private mortgage can approve you on equity when the bank says no and close in days — but it costs more and runs short-term. Here are the real advantages and disadvantages, so you can decide with eyes open.
Equity-based approvalFast, flexible closingHigher rate + feesUsually 1-year termsShort-term bridgePlanned exit to an A-lender
When a bank declines you, the pitch you hear next is often one-sided — either “private lending is a rip-off” or “private is the easy yes.” Neither is honest. A private mortgage is a real tool with real trade-offs: it approves on the equity in your home rather than your credit score or provable income, and it can fund fast when a bank can’t. But it also carries a higher rate, lender and broker fees, and a short term that assumes you have a way out. Used well, it’s a short-term bridge that solves a specific problem and hands you back to an A-lender. Used blindly, it can become an expensive place to get stuck. This page lays out both sides so you can weigh them properly.
What you get
Why Canadians choose Mortgage Squad Advisors.
Approval is based on your home’s equity, not your credit score or income documents
Works when banks decline — self-employed, bruised credit, past bankruptcy or consumer proposal, or hard-to-prove income
Fast closing — private files can often fund in days when a bank timeline won’t work
Flexible underwriting on unusual properties, incomes, or situations a computer at the bank rejects
Bridges a gap — cover a firm closing, a tax bill, or arrears while you sort out a longer-term solution
Short-term by design, so you’re not locked into the higher cost for decades
Interest-only payments are common, which keeps monthly cashflow lower during the term
Can consolidate urgent debts against equity to stop the bleeding while you rebuild
Gives you time and breathing room to repair credit or income so an A-lender will take you next
A licensed broker sources and compares private options and discloses every fee in writing
Maya · 24/7 AI advisor
Question about private mortgage? Maya answers instantly in 50+ languages.
We look at your home’s value, existing mortgage, and the specific problem you’re solving — a firm close, arrears, a declined refinance. Private lenders typically lend to roughly 75–80% loan-to-value, so we confirm there’s enough equity before anything else. No bureau pull to begin.
2
Compare offers + see every cost
We source private options and put the rate, lender fee, broker fee, and term in writing side by side. You see the true cost of the bridge — not a teaser — and how it compares to alternatives before you commit to anything.
3
Fund now, plan the exit
If it makes sense, we close quickly and solve the immediate problem. At the same time we map the exit: the concrete steps and timeline to refinance back to an A- or B-lender when your credit, income, or property situation qualifies. The private mortgage is the bridge, not the destination.
A private mortgage is a loan secured against your home by a private lender — an individual or a mortgage investment corporation — rather than a bank or a B-lender. Because approval rests on the equity in your property instead of your credit score or provable income, it opens a door that mainstream lending sometimes closes. That’s the core appeal, and it’s a genuine one. But the same features that make it flexible also make it more expensive, and understanding both halves is the whole point of this page.
On the plus side: equity-based approval, fast and flexible closing, short-term structure, and often interest-only payments that keep monthly cashflow manageable. On the minus side: a higher interest rate than a bank, lender and broker fees, usually a one-year term, and a loan-to-value cap around 75–80%. None of these are hidden gotchas — they’re the honest cost of a lender taking on a file a bank wouldn’t. The sections below unpack the advantages, then the disadvantages, then who it actually fits and how you get back out.
The pros — when a private mortgage makes sense
The biggest advantage is approval on equity, not on your score or income documents. If you’re self-employed and write down your income, carry bruised or recovering credit, are fresh out of a bankruptcy or consumer proposal, or simply don’t fit a bank’s rigid boxes, a private lender can still say yes when there’s enough equity behind the request. For many borrowers, that’s the difference between solving a problem and being stuck.
Speed and flexibility come next. Private files can often fund in days rather than weeks, which matters enormously when a purchase closing is firm, arrears are escalating, or a bank approval fell through at the last minute. Private lenders also underwrite by hand, so unusual properties, incomes, and situations that a bank’s automated system rejects can still get a fair look.
Finally, the short-term, often interest-only structure is a feature, not a flaw. A private mortgage is meant to bridge a gap — buy you the time to repair credit, stabilize income, sell a property, or clear a tax bill — and then hand you off. Interest-only payments keep the monthly cost lower while the bridge is in place. Used this way, a private mortgage is a targeted, time-limited tool, and that’s exactly when it earns its keep.
The cons — the real disadvantages to weigh
The clearest downside is cost. Private mortgage rates are typically higher than bank and B-lender pricing, and there are usually lender and broker fees on top of the rate. That’s the price of equity-based approval and speed — the lender is pricing real risk — but it’s money, and it’s why a private mortgage should be short-term. We disclose every rate and fee in writing so you’re comparing the true cost, never a headline number.
The short term cuts both ways. A one-year term is fine if your exit is on track, but if nothing has changed by renewal you can face another round of fees or a renewal at a similar cost. Interest-only payments keep cashflow light but mean your balance isn’t shrinking, so you’re relying on the exit rather than paydown. And the loan-to-value cap — generally around 75–80% including your existing mortgage — means you need real equity; a private mortgage can’t stretch past what your home supports.
The biggest risk isn’t any single term — it’s not having an exit. A private mortgage without a realistic plan to refinance out can become an expensive place to stay. That’s why we won’t place one without mapping the way back first. None of this is meant to scare you off; it’s meant to make sure the math works before you commit.
Who a private mortgage is right for
A private mortgage fits best when two things are both true: you have meaningful equity in your home, and you have a credible path back to mainstream lending. Inside that overlap sit most of the people it helps — the self-employed borrower whose real income doesn’t show on paper, the homeowner rebuilding after a bankruptcy or consumer proposal, someone with bruised credit that’s recovering, or a buyer facing a firm closing a bank can’t fund in time.
It’s also a reasonable stop on the alternative-lending ladder when even a B-lender isn’t a fit yet — a short private bridge that stabilizes the situation, then steps up to a B-lender and eventually back to an A-lender. If you’re comparing tiers, our A-lender vs B-lender explainer shows where private sits.
Who it’s not right for: anyone without enough equity to support the loan, and anyone with no plausible exit. If a private mortgage would simply postpone a problem rather than bridge you to a solution, the honest advice is to look at other options first — a second mortgage, a HELOC, or a different structure entirely. A good broker tells you when the tool doesn’t fit.
The exit plan — getting back to an A-lender
A private mortgage is a bridge, and every bridge needs a far side. The exit plan is the concrete route off the private mortgage and back to mainstream pricing — and mapping it is the most important thing we do before placing your file, not an afterthought once the term is nearly up.
In practice the exit usually means a refinance to a B-lender or A-lender once the thing that caused the decline has improved: 12–24 months of clean payments rebuilding your credit, a couple of years of tax filings proving self-employed income, a property issue resolved, or debts cleared. We’re specific about it — what needs to change, roughly how long it takes, and who you’ll likely refinance with — so the higher-cost period is as short as it can be and you know the target from day one.
With access to 100+ lenders including B and private, FSRA brokerage licence #13737, and every rate and fee disclosed in writing, the aim isn’t to place you in a private mortgage and move on. It’s to use it for exactly what it’s good at, then get you off it. If you want the full picture on cost, our private mortgage rates page goes deeper, or a licensed mortgage broker can walk your numbers through with you — start online at apply or ask Maya any time.
FAQ
Common questions, answered.
Don’t see yours? Ask Maya — instant answer, any time.
What are the main pros and cons of a private mortgage?
The pros: approval based on home equity rather than credit or income, fast and flexible closing, and a short-term structure that bridges a specific gap. The cons: a higher interest rate than a bank, lender and broker fees, usually a one-year term, often interest-only payments, and a loan-to-value cap around 75–80%. The single most important factor is having a realistic exit strategy back to a mainstream lender. Weighed against being declined entirely, or against 20%+ credit-card interest, a short private bridge can be the right move — but only with that exit in view.
Is a private mortgage a good idea?
It can be, when it’s used for what it’s good at: a short-term bridge to solve an urgent, specific problem while you set up a return to A-lending. It’s a poor idea as a permanent solution or when there’s no clear way out of it. The honest answer depends entirely on your situation and your exit plan — which is exactly what a licensed broker should map with you before you sign, not after.
Why are private mortgage rates and fees higher?
Private lenders are usually individuals or mortgage investment corporations lending their own capital, and they’re taking on files banks won’t — weaker credit, unprovable income, unusual properties, or urgent timelines. The higher rate and the lender fee price that added risk and speed. Rates are typically higher than bank and B-lender pricing, and there are usually lender and broker fees on top. We disclose every dollar in writing so you can compare the true cost, not a headline rate.
How long is a private mortgage term?
Most private mortgages are short — commonly one-year terms, sometimes interest-only. That’s by design: a private mortgage is meant to be a bridge, not a 25-year commitment. The short term keeps you focused on the exit and stops the higher cost from compounding over decades. If your plan needs longer, we’ll say so and look at whether a B-lender fits better.
How much can I borrow with a private mortgage?
Private lenders generally lend up to around 75–80% of your home’s value, counting your existing mortgage, though many stay more conservative depending on the property and location. Because approval rests on equity, the amount of equity you hold matters more than your income or score. On a firm 80% file you’d want a comfortable equity cushion; we confirm the numbers against a realistic property value before quoting anything.
Who is a private mortgage right for?
Typically borrowers a bank has declined for reasons that are temporary or explainable: self-employed with hard-to-prove income, bruised or recovering credit, a recent bankruptcy or consumer proposal, tax arrears, or a firm closing that a bank can’t fund in time. The common thread is meaningful home equity plus a credible path back to mainstream lending. If neither of those is present, a private mortgage is usually the wrong tool.
What is the exit strategy, and why does it matter so much?
The exit strategy is your concrete plan to leave the private mortgage — usually a refinance to an A- or B-lender once your credit, income, or property situation qualifies. It matters because the private mortgage is a short-term bridge; without a way off it, the higher cost keeps running. Before we place any private file, we map the exit: what needs to change, roughly how long it takes, and who you’ll likely refinance with. If we can’t see a realistic exit, we’ll tell you straight.
Can I get a private mortgage with bad credit or after bankruptcy?
Often yes — private lenders weigh equity far more heavily than credit history, so a low score, recent missed payments, a past bankruptcy, or a consumer proposal don’t automatically disqualify you the way they might at a bank. The trade-off is the higher rate and fees. Used as a bridge while you rebuild, it can be a sensible step; our bad-credit and post-bankruptcy pages go deeper on the path back to A-lending.
How fast can a private mortgage close?
Private files can often fund in a matter of days when speed is the point — a firm closing date, arrears about to escalate, or a bank that ran out of time. The exact timeline depends on the property, the paperwork, and the lender, so we won’t promise a date we can’t hit. If the clock is the whole reason you’re here, tell us up front and we’ll prioritize accordingly.
