What Is a Private Mortgage?
A private mortgage is a real estate loan funded by private investors or private lending companies rather than traditional financial institutions like banks or credit unions. In Canada, private mortgages are registered against the property title just like any other mortgage, giving the lender a secured interest in the property.
The fundamental difference between private lending and traditional lending comes down to how the borrower is evaluated. Banks focus heavily on credit scores, provable income, and debt service ratios. Private lenders focus primarily on the equity in the property — the difference between what the property is worth and what is owed on it.
This equity-based approach is what makes private mortgages accessible to borrowers who cannot qualify through traditional channels. It is not that these borrowers are bad risks in every case — many are self-employed business owners, people recovering from a one-time financial setback, or individuals who simply need financing faster than a bank can deliver.
How Private Lending Works in Canada
The private lending process is simpler and faster than traditional mortgage applications. Here is how it typically works:
1. Application and property assessment
You provide basic information about your property, the amount you need, and your situation. The lender orders an appraisal to confirm the property value. Unlike bank applications, income verification is minimal and credit scores are secondary to the equity position.
2. Lender review and approval
The private lender reviews the property appraisal, confirms the loan-to-value ratio is within their comfort zone (typically up to 75% to 80%), and issues a commitment letter outlining the rate, term, fees, and conditions.
3. Legal review and funding
A real estate lawyer handles the mortgage registration and ensures all conditions are met. The funds are advanced — often within 2 to 3 weeks of application, sometimes faster for straightforward deals. This speed is one of the key advantages of private lending.
Typical Rates and Fees
Transparency matters, especially when you are already in a challenging financial situation. Here is what private mortgage financing typically costs in Canada:
| Cost Component | Typical Range | Notes |
|---|---|---|
| Interest rate | 7% to 15%+ | Depends on LTV, property type, and risk profile |
| Lender fee | 1% to 3% of loan | One-time fee, typically deducted from the advance |
| Broker fee | $2,000 to $2,500+ | We cover this entirely at Loans Expert |
| Legal fees | $1,000 to $2,000 | Paid to the real estate lawyer handling the transaction |
| Appraisal | $300 to $500 | Required to confirm property value |
While these costs are higher than traditional mortgages, they need to be weighed against the alternative. If the choice is between a private mortgage at 10% and not being able to purchase, close on time, or consolidate crushing debt — the private mortgage often makes financial sense as a short-term tool.
When a Private Mortgage Is the Right Choice
Private mortgages are not for everyone, and they should not be a long-term solution. But there are specific situations where they are the best or only option available:
- You have been declined by banks and B-lenders due to credit history, but you have substantial equity in your property.
- You are self-employed and cannot provide the income documentation that traditional lenders require, even though your business is profitable.
- You need to close a purchase quickly — for example, to avoid losing a property or to complete a time-sensitive real estate transaction.
- You have recently experienced a bankruptcy or consumer proposal and need financing while you rebuild your credit.
- You want to consolidate high-interest debts using your home equity, and traditional lenders will not approve a refinance.
- You need construction or renovation financing that falls outside what banks will fund.
Risks to Understand
Being transparent about risks is just as important as explaining the benefits. Here is what you should understand before proceeding with a private mortgage:
Higher interest costs
At 7% to 15% or more, you will pay significantly more in interest than you would with a traditional mortgage. On a $300,000 private mortgage at 10%, you are paying $30,000 per year in interest alone. This is why a clear exit strategy is essential.
Short terms mean renewal pressure
Private mortgage terms are typically 1 to 3 years. If your situation has not improved enough to qualify for traditional financing by renewal time, you may need to renew the private mortgage — potentially at a higher rate — or find alternative financing.
Fees reduce your net proceeds
Lender fees, legal fees, and appraisal costs are typically deducted from your mortgage advance. On a $200,000 private mortgage, you might net $190,000 to $195,000 after fees. Factor this into your planning.
Your home is the collateral
Like any mortgage, a private mortgage is secured against your property. If you cannot make the payments, the lender has the right to pursue power of sale. Only borrow what you can comfortably repay.
Building Your Exit Strategy
The most important part of any private mortgage is the plan to get out of it. A private mortgage should always be temporary — a bridge to better financing. Here are the most common exit strategies:
Transition to a B-lender mortgage. B-lenders (alternative lenders) have more flexible qualifying criteria than banks. Many private mortgage clients can qualify for B-lender rates (typically 5% to 7%) within 1 to 2 years by making consistent payments and improving their credit score. This is the most common exit path.
Transition to an A-lender (bank) mortgage. With enough time and the right steps — rebuilding credit, documenting income, reducing debt — many borrowers can qualify for traditional bank rates within 2 to 3 years. This is the ultimate goal.
Sell the property. In some cases, the best exit strategy is to sell the property, pay off the private mortgage, and use the remaining equity to start fresh — whether that means purchasing a different property with traditional financing or renting while you rebuild.
Refinance with increased equity. If your property value increases (through renovations, market appreciation, or paying down the principal), you may be able to refinance with a traditional lender based on the improved loan-to-value ratio.
How Loans Expert Helps
At Loans Expert, private mortgages are not a side business — they are a core part of how we help Canadians navigate difficult financial situations. Here is what makes our approach different:
- We cover all broker fees. You pay only the lender fees, saving $2,000 to $2,500 or more upfront.
- We build your exit strategy from day one. Every private mortgage client gets a personalized plan to transition to better financing.
- We have relationships with multiple private lenders, which means we can shop your deal and negotiate better terms on your behalf.
- We stay in touch throughout your term, monitoring your progress and identifying the earliest opportunity to move you to a B-lender or A-lender.
- We treat every client with respect. Financial challenges can happen to anyone, and we believe you deserve professional, judgment-free service.
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