Private Mortgage Lenders in Canada: What to Know Before You Sign

Mortgages & Home Buying

Private Mortgage Lenders in Canada: What to Know Before You Sign

Mar 20, 202624 min read

There are moments in the Canadian housing market when traditional mortgage financing simply doesn’t work. Your credit score is too low for a bank. You’re self-employed and your income is hard to document the way lenders want. The property has a non-conforming feature. You’re two months out of a consumer proposal and need to close a purchase before your A-lender approval comes through.

Private mortgage lenders exist for exactly these situations. They move faster than banks, care less about credit scores, and can often fund deals that no regulated lender will touch. But that flexibility comes at an enormous price — and for borrowers who don’t go in with clear eyes and a solid exit strategy, private mortgages can be a path not to homeownership, but to losing the home entirely.

This guide explains everything you need to know about private mortgage lending in Canada — how it works, what it costs, what the risks are, when it makes sense, and how to protect yourself.

What Is a Private Mortgage Lender?

A private mortgage lender is any individual or entity that lends money secured against real property outside of the traditional regulated banking system. Private lenders in Canada fall into three main categories:

1. Mortgage Investment Corporations (MICs)

A Mortgage Investment Corporation is a specific legal entity created under the Income Tax Act of Canada (Section 130.1). MICs pool investor capital and deploy it as mortgage loans. They are required to:

• Invest at least 50% of their assets in Canadian residential mortgages
• Distribute 100% of net income to shareholders annually
• Have a minimum of 20 shareholders
• Be registered investment vehicles subject to securities law oversight

MICs are the most regulated and transparent form of private mortgage lending. Major Canadian MICs include Alpine Credits, CMI Financial Group, Fisgard Asset Management, and Calvert Home Mortgage. Some MICs are publicly listed (like MCAN Mortgage Corporation on the TSX), while others are private.

2. Mortgage Finance Companies and B-Lenders

Entities like Home Trust, Equitable Bank, and MCAP occupy a middle ground often called the “B-lender” space. These are not chartered banks and aren’t subject to the same regulatory requirements, but they are federally or provincially regulated financial institutions. They typically charge rates 1–4% above prime banks but well below true private lenders — generally 5.5–9% for mortgages as of 2026.

Note: B-lenders are regulated and have established underwriting standards. They’re distinct from true private lenders and often a better option for people with credit challenges who don’t qualify for A-lenders but have stable income.

3. Individual Private Lenders

These are individuals — sometimes high-net-worth individuals with real estate investment experience, sometimes less sophisticated investors — who lend their own money secured by a mortgage. Individual private lenders in Canada have almost no regulatory oversight beyond provincial mortgage broker licensing requirements (the mortgage broker arranging the deal must be licensed; the lender themselves typically does not need to be).

Individual private lenders typically charge the highest rates and have the most variable terms. Their due diligence processes vary enormously — some are professional and experienced, others are not.

How Private Mortgages Work

Private mortgages function similarly to traditional mortgages in their basic structure: you borrow money secured against a property, make regular interest payments (and sometimes principal payments), and the lender holds a charge against your property title. The key differences are:

First Mortgage vs. Second Mortgage (Private)

Private lenders can hold either a first mortgage (first charge against the property — highest priority in the event of default) or a second mortgage (second charge, subordinate to the first). Second-position private mortgages carry more risk for the lender (they’re only repaid after the first mortgage lender in a sale), which means they charge significantly higher rates:

• First private mortgage: 8–12% typical
• Second private mortgage: 12–18%+ typical

Many private mortgages are structured as interest-only — you make monthly interest payments but pay no principal. At the end of the term (often 12 months), your full original loan balance is still owing as a “balloon payment.” If you cannot refinance at term end, you face a difficult choice: renew at whatever rate the lender offers, find another private lender, or sell the property. Always go in knowing exactly how you’ll exit the private mortgage before the term ends.

The True Cost of a Private Mortgage: A Complete Example

Published interest rates significantly understate the true cost of private mortgages. Here’s a complete cost breakdown for a $300,000 private first mortgage:

A mortgage marketed as “11% private lending” actually costs over 16% annually when all fees are included. On a $300,000 loan, that’s $49,700 for 12 months of interest-only borrowing — and you still owe the entire $300,000 at the end.

Interest Rate Ranges: What Actually Drives Your Rate

Private mortgage rates in Canada aren’t arbitrary — they reflect several key risk factors that lenders price into their rates:

Loan-to-Value (LTV) Ratio

This is the single most important factor. Private lenders are asset-based, not income-based. They want to know that if they had to sell the property to recover their loan, they’d get their money back. Lower LTV = lower rate:

Property Type and Location

• Urban residential (single family, condo): Best rates — most liquid market
• Rural property: Higher rates due to lower liquidity in a forced sale
• Commercial or mixed-use: Higher rates, different underwriting
• Vacant land: Highest rates, most lenders decline — no income and no existing structure
• Properties with issues (grow ops, environmental contamination, structural problems): Severely limited options; some MICs specialize in these situations

Credit Score (As a Secondary Factor)

Unlike A-lenders, private lenders don’t automatically decline borrowers based on credit score. However, a very low score (under 400) or very recent bankruptcy/consumer proposal within 3–6 months can still result in higher rates or declines from quality private lenders. The overall picture of creditworthiness matters even if it’s not the primary underwriting criterion.

Borrower’s Exit Strategy

A credible exit strategy actually affects your private mortgage rate. Lenders who believe you have a clear, realistic plan to refinance into conventional financing within 12–24 months will sometimes price the loan more favourably. Borrowers with no clear exit strategy face higher rates because the lender prices in renewal risk.

When a Private Mortgage Actually Makes Sense

Private mortgages are not inherently bad products. In specific situations, they are the right tool — a bridge to get you from where you are to where you can qualify for conventional financing. The key is using them for that bridge purpose, not as a permanent mortgage solution.

Situation 1: Recent Bankruptcy or Consumer Proposal

Banks and B-lenders typically require 2 years post-discharge (for bankruptcy) or 2–3 years post-completion (for consumer proposals) before approving a mortgage. If you’re discharged and need to purchase or refinance within this window, a private mortgage can bridge you until you qualify for conventional financing.

The strategy: take a 1–2 year private mortgage, make every payment on time, continue rebuilding credit, then refinance to a B-lender or A-lender when eligible.

Situation 2: Self-Employed with Non-Traditional Income Documentation

Canada’s stress test requires proving income via NOAs (Notices of Assessment), T4s, or bank statements. Many self-employed borrowers — particularly those who run legitimate businesses but minimize reported taxable income through legal deductions — don’t show sufficient income on paper to qualify for conventional mortgages. Private lenders can assess the business’s actual cash flow rather than just taxable income.

Situation 3: Bridge Financing

Short-term private mortgages are sometimes used for bridge financing — for example, when you’ve made an offer on a new property before your existing home is sold. In this case, the private mortgage covers the gap between your existing equity and your new purchase, and is repaid in full when your old home sells. This is a well-established and relatively low-risk use of private lending.

Situation 4: Non-Conforming Property

Properties that have features making them unacceptable to conventional lenders — unusual construction, rural location, mixed residential/commercial use, or previous use as a grow operation — may be financeable through private lenders who specialize in such properties. The rate will be higher, but if the property is purchased at a discount reflecting these issues, the math can still work.

Situation 5: Time-Sensitive Purchases

Private lenders can sometimes fund a mortgage in 24–72 hours. In competitive markets where a deal needs to close quickly or be lost, a private mortgage may be the only way to complete the purchase. This is typically followed by immediate refinancing once the property is owned and a conventional mortgage can be arranged.

Situation 6: Stopping a Power of Sale

If a borrower is in default on their existing mortgage and the lender has initiated power of sale proceedings, a private mortgage can sometimes be used to pay out the defaulting mortgage and stop the sale process. This is a high-risk, last-resort use of private lending — and only makes sense if the borrower has a realistic plan to address the underlying financial issue.

If you cannot afford the payments on a conventional mortgage, adding the cost of a private mortgage doesn’t fix the problem — it accelerates it. Private mortgages make sense when you can afford the payments but have a qualifying issue. If the core issue is affordability, seek credit counselling first (AFCC, Credit Counselling Canada) before considering private financing.

The Risks You Must Understand Before Signing

Risk 1: Renewal Risk (The Balloon Payment Problem)

At the end of your private mortgage term, you have three options: pay the full balance (balloon payment), renew with the same lender, or refinance with a new lender. If your credit hasn’t improved sufficiently to refinance conventionally, you’re at your current private lender’s mercy for renewal terms — which may be higher than your original rate. This is called “renewal risk” and it’s the most underappreciated risk in private lending.

Risk 2: Lender Refuses to Renew

A private lender can decline to renew your mortgage at term end for any reason. This forces you to either find another private lender (more fees) or sell the property. If the real estate market has declined and your property is worth less than you owe, you may face a forced sale at a loss.

Risk 3: Fee Stacking

Some unscrupulous mortgage brokers and private lenders stack fees across multiple renewals. Each 12-month renewal may generate a new lender fee (2–4%) and new broker fee (1–2%). A borrower who renews three times is paying these fees three separate times on top of the high interest rate. Over three years on a $300,000 loan at 12% with 3% lender fees and 1.5% broker fees, the total fees alone can exceed $45,000.

Risk 4: Power of Sale and Foreclosure

Private lenders can initiate power of sale proceedings very quickly if you miss payments — often after just 15 days, compared to 3+ months for banks. The terms vary by province, but private lenders typically have less patience for payment difficulties than regulated lenders. In Ontario, power of sale proceedings can proceed within 35 days of a missed payment notice; in BC, foreclosure proceedings can begin relatively quickly as well.

Risk 5: Predatory Lenders

The private lending space in Canada contains a minority of genuinely predatory operators who structure loans specifically to trigger default. Red flags include:

• Unclear or missing loan documentation
• Extremely short notice periods before power of sale
• Pressure to close quickly without time for legal review
• Fees that increase if you try to pay out the mortgage early
• Lenders who seem more interested in the property than in being repaid

Risk 6: Unregulated Fee Structures

Unlike banks, private lenders are not subject to the Cost of Borrowing Regulations under the Bank Act. They are not required to disclose APR in a standardized format. This makes it much harder to compare true costs across private lenders. Always calculate the full APR yourself (including all fees, using an online APR calculator) before comparing offers.

MIC vs. Individual Private Lenders: Which Is Safer?

Generally, well-established MICs represent a safer borrowing experience than individual private lenders. However, good individual private lenders (typically experienced real estate investors who lend through licensed brokers) can be excellent partners. The key is using a reputable licensed mortgage broker who will vet the lender on your behalf.

Provincial Regulation of Private Mortgage Lending

The regulation of mortgage brokering (and by extension private mortgage lending) varies significantly by province:

In all provinces, anyone who arranges a mortgage for compensation must be licensed. Verify your mortgage broker’s license with your provincial regulator before proceeding. Unlicensed brokering is illegal and can result in your loan agreement being void.

Alternatives to Private Mortgages

Before committing to a private mortgage, exhaust every alternative:

1. B-Lenders (Trust Companies and Mortgage Finance Companies)

   Home Trust, Equitable Bank, MCAP, First National, and others offer mortgages at rates significantly below private lenders (5.5–9%) with more reasonable fees. They have more flexible qualification criteria than banks but are regulated. For borrowers with credit scores of 550–650, this should be the first alternative explored.

2. Credit Unions

   Many credit unions have their own underwriting criteria and are not bound by OSFI’s B-20 stress test guidelines for uninsured mortgages (provincial credit unions). They may be able to approve borrowers that banks decline, at rates comparable to or below B-lenders.

3. Co-Borrower or Guarantor

   Adding a co-borrower (such as a parent or sibling) with strong credit and income can qualify you for conventional financing you couldn’t access alone. Unlike private mortgages, this incurs no additional fees and carries a much lower interest rate.

4. Waiting and Credit Rebuilding

   If you’re 6–12 months from a consumer proposal completion or have credit challenges that 12 months of positive history would address, waiting may be financially superior to paying $20,000–$50,000 in private mortgage costs. Run the numbers — what’s the total cost of a 12-month private mortgage vs. renting for one more year while your credit improves?

5. Vendor Take-Back (VTB) Mortgage

   In some private real estate sales, the seller is willing to “take back” a mortgage — essentially lending you part of the purchase price. Rates are negotiated between buyer and seller and can sometimes be below private lender rates. VTB mortgages are more common in slower real estate markets or for unique properties.

Private mortgage terms vary enormously between lenders. A rate of 10% at one lender might be 15% at another for the identical borrower and property. Always get at least 2–3 quotes before committing. A good mortgage broker will shop multiple private lenders on your behalf — but make sure the broker’s compensation structure doesn’t create an incentive to steer you toward the highest-rate option.

Your Exit Strategy: The Most Important Part of the Plan

Before signing any private mortgage agreement, you must have a concrete, realistic exit strategy. This means knowing specifically how you will pay off or replace the private mortgage when the term ends. The four exit strategies available to most borrowers are:

Exit 1: Refinance to A-Lender

The most desirable outcome. After 12–24 months of private mortgage payments (and credit rebuilding), you qualify for a conventional mortgage at 4–5%. This requires having a specific, realistic credit score target and understanding exactly what it will take to reach that score.

Exit 2: Refinance to B-Lender

A B-lender mortgage at 6–8% is a significant improvement over most private rates. If you’ve gone through bankruptcy or consumer proposal, this is often the realistic first step before eventually qualifying for an A-lender.

Exit 3: Sale of the Property

If refinancing isn’t possible, selling the property pays out the private mortgage. This is the backstop exit strategy. Make sure your private mortgage term (with any renewal option) is long enough to give you time to sell under reasonable conditions — don’t get locked into a 6-month term in a slow market without a renewal option.

Exit 4: Private Renewal (Last Resort)

If neither refinancing nor sale is viable, renewing the private mortgage is the fallback. Negotiate renewal terms before the original term ends — don’t let the clock run out and give the lender complete pricing power at renewal. The best time to negotiate renewal terms is 3–6 months before maturity.

What to Look For in a Private Mortgage Agreement

Have a real estate lawyer — not just a mortgage broker — review your private mortgage agreement before signing. Key terms to review and understand:

• Interest rate: Confirm it’s what was quoted. Is it calculated monthly, semi-annually, or annually?
• Compound period: Canadian banks compound semi-annually. Private lenders sometimes compound monthly, which is more expensive even at the same nominal rate.
• Lender fee: Stated as a percentage of the loan, taken at funding. Confirm this amount exactly.
• Prepayment privileges: Can you pay extra or pay out the mortgage early? Is there a prepayment penalty?
• Renewal terms: Does the lender have the right to change the rate at renewal? By how much?
• Default provisions: How many days of missed payment before the lender can initiate power of sale? What notice are you entitled to?
• Postponement rights: If you need to refinance and take a new first mortgage, can the private (second) mortgage lender be “postponed” to remain in second position?
• Property insurance requirements: Private lenders typically require you to name them as a loss payee on your property insurance.

In Canada, mortgages are governed by provincial property law. In Ontario, the Mortgages Act and Land Titles Act govern default procedures and rights. In BC, the Land Title Act applies. Regardless of province, a lender cannot take your property without following the legally required power of sale or foreclosure process — which takes months and includes required notices to you. If a lender threatens to take your home immediately upon a missed payment, this is illegal. Contact your provincial law society referral service for emergency legal help.

How to Find a Legitimate Private Mortgage Lender

1. Work With a Licensed Mortgage Broker

   Always use a licensed mortgage broker who is experienced in alternative and private lending. Verify their license on your provincial regulator’s website. Ask specifically about their experience with private mortgages and how many private lenders they work with.

2. Ask for Multiple Quotes

   A good broker should present you with at least 2–3 private mortgage options with different rates and terms. If they present only one option and pressure you to accept it, get a second opinion from another broker.

3. Research the MIC or Lender

   For MICs, check whether they have a published track record, management team information, and audited financial statements. For individual lenders, ask your broker how long they’ve worked with this lender and how many files they’ve done together.

4. Have Your Own Lawyer Review Everything

   The lender will have their own lawyer. You need your own. Never use the lender’s lawyer to represent you — this is a significant conflict of interest. Budget $1,500–$2,500 for your own legal representation at closing.

5. Confirm All Fees in Writing Before Committing

   Get a complete fee disclosure in writing before the application moves forward. This should include the lender fee, broker fee, and an estimate of all third-party costs (appraisal, legal, title insurance). Calculate the full APR yourself.

Private Mortgage Costs by Province: Key Differences

While private mortgage rates are similar across Canada, certain provincial differences affect total cost:

Red Flags: When to Walk Away

These are absolute warning signs that a private mortgage arrangement is problematic:

• The lender or broker is not licensed (verify before proceeding)
• You’re being pressured to sign quickly without time for legal review
• The lender refuses to provide written fee disclosure before application
• The agreement contains a clause allowing the lender to demand full repayment at any time without cause (“demand loan” structure)
• Unexplained fees appear on the final documents that weren’t on the initial disclosure
• The appraisal is arranged entirely by the lender with no opportunity for you to independently verify the value
• The lender seems more interested in acquiring your property than in your ability to repay
• Oral promises from the broker or lender that contradict the written agreement (“don’t worry about that clause, it won’t apply to you”)

Any private lender or broker who discourages you from hiring your own lawyer is revealing either that the terms of the deal don’t hold up to legal scrutiny, or that they want you to remain uninformed about your rights. Walk away. A legitimate private lender expects and welcomes independent legal representation for the borrower.

The Path from Private to Prime: A Realistic Timeline

For most borrowers who end up in private lending due to credit challenges, the path back to conventional financing follows a predictable timeline:

Frequently Asked Questions

Bottom Line: Private Mortgages Are a Tool, Not a Trap — If Used Correctly

Private mortgage lending in Canada fills a genuine gap in the market. There are real situations where conventional financing isn’t available and private lending is the most practical bridge to homeownership or financial stability. In those situations, working with a licensed mortgage broker, a reputable MIC or private lender, and your own real estate lawyer can result in a private mortgage that serves its intended purpose: getting you from point A (unable to qualify conventionally) to point B (holding a conventional mortgage at a reasonable rate).

The danger is in treating private mortgages as a long-term solution, in underestimating their full cost, or in entering them without a clear exit strategy. When those things happen, what starts as a bridge becomes a treadmill — high payments, rolling fees, and a loan that never gets refinanced.

Go in with open eyes. Calculate the full APR. Know your exit before you sign. Have your own lawyer review every document. And work only with licensed professionals who have a verifiable track record in the private lending space.

If you’re considering a private mortgage because your credit score is the primary barrier, invest 30 minutes pulling your credit reports before doing anything else. Many Canadians have errors on their credit reports that, once corrected, raise their score enough to qualify for B-lender or even A-lender financing. That 30 minutes could save you $20,000–$50,000 in private mortgage costs.