In This Article What Is Private Lending? How Private Lending Differs When Private Mortgages Make Sense Scenario 1: Credit Issues Scenario 2: Self-Employment Income Scenario 3: Time-Sensitive Purchase Scenario 4: Bridge to Bank Approval Explore Your Options Private Mortgage Costs Interest Rates Additional Fees True Cost Example Private Mortgage Requirements What Lenders Focus On Property Considerations The Exit Strategy: Critical Component Why Exit Strategy Matters Common Exit Strategies First vs. Second Mortgages First Mortgage (Private) Second Mortgage (Private) When Each Makes Sense Red Flags to Avoid Warning Signs of Predatory Lending Protecting Yourself FAQ What's Next More on this topic What Is a Private Mortgage? When Private Lending Makes Sense 1. Credit Challenges 2. Self-Employment Income Verification 3. Time-Sensitive Purchases 4. Unique Properties The True Cost of Private Mortgages Exit Strategy: The Critical Factor Private Mortgage vs. B-Lender: Know the Difference The Bottom Line More on this topic FAQ What's Next Table of Contents Private mortgages are often misunderstood. While they're associated with credit problems, many borrowers use private lending for strategic reasons. This guide explains when private mortgages make sense and how to use them wisely. What Is Private Lending? Private mortgages are loans from individuals or investment companies rather than banks or credit unions. How Private Lending Differs Private Lender Qualification Income, credit, ratios Primarily equity Interest rate 4-6% 7-15%+ Approval speed Days to weeks Often same day Maximum LTV 80-95% 65-75% typically Term length 1-10 years 6-24 months typically Purpose Long-term ownership Short-term solution When Private Mortgages Make Sense Scenario 1: Credit Issues Situation: Recent bankruptcy, consumer proposal, or credit event Why private works: Approve based on equity, not credit score Provides time to rebuild credit Exit to traditional lender in 1-2 years Scenario 2: Self-Employment Income Situation: New business or low declared income on tax returns Why private works: Doesn't require 2 years of T1 Generals Focuses on equity and ability to pay Bridge until income documentation improves Scenario 3: Time-Sensitive Purchase Situation: Need to close quickly (estate sale, builder deadline) Why private works: Can fund in days, not weeks Fewer conditions and bureaucracy Secure property now, refinance later Scenario 4: Bridge to Bank Approval Situation: Need 6-12 months to meet bank criteria Why private works: Provides interim financing Clear path to traditional mortgage Prevents losing property opportunity Explore Your Options Contact our team to determine if private lending is right for your situation—and develop an exit strategy. Private Mortgage Costs Interest Rates Typical Rate Range First mortgage, strong equity 7-9% First mortgage, marginal equity 9-12% Second mortgage 10-15%+ Complex situations 12-18%+ Additional Fees Notes Lender fee 1-3% of mortgage Paid at closing Broker fee 0-2% May be additional Legal fees $1,500-$3,000 Both sides Appraisal $400-$600 Usually required True Cost Example 0,000 private mortgage for 1 year: Amount Interest (10% annually) $20,000 Lender fee (2%) $4,000 Legal fees $2,500 Appraisal $500 Total cost $27,000 Effective cost: 13.5% when fees are included. Private Mortgage Requirements What Lenders Focus On Typical Requirement Equity/LTV Critical 65-75% max LTV Property type High Prefer residential Location High Urban/suburban preferred Exit strategy Critical Clear plan to refinance Ability to make payments Moderate Proof of income helpful Credit score Low May not even pull credit Property Considerations Private Lender Interest Urban house High—easy to value/sell Urban condo Moderate—depends on building Suburban house Moderate to high Rural property Lower—harder to value/sell Vacant land Low—specialty lenders only Commercial Specialty lenders The Exit Strategy: Critical Component Why Exit Strategy Matters Private mortgages are short-term solutions. Without a clear exit, you risk: Paying high interest indefinitely Power of sale if you can't refinance Renewal at even higher rates Common Exit Strategies Requirements Rebuild credit 12-24 months Payment history, time Establish income docs 12-24 months 2 years of tax returns Property sale Varies Market conditions Equity increase Depends Appreciation or paydown Partner buyout Varies Settlement agreement First vs. Second Mortgages First Mortgage (Private) Replaces or is your only mortgage Lower rates than second mortgages First claim on property Maximum LTV around 75% Second Mortgage (Private) Sits behind existing first mortgage Higher rates due to higher risk Combined LTV usually max 80% Smaller loan amounts typically When Each Makes Sense First or Second First-time purchase with credit issues First Accessing equity, keeping existing mortgage Second Breaking bank mortgage too expensive Second Need maximum funds First (higher LTV) Red Flags to Avoid Warning Signs of Predatory Lending What It Means Upfront fees before approval Scam risk No clear fee disclosure Hidden costs Pressure to decide immediately Rushed decision Unrealistic promises Too good to be true No license/registration Unregulated Balloon payments you can't afford Set up to fail Protecting Yourself Work with licensed mortgage brokers Get everything in writing Use a real estate lawyer Understand all fees before committing Have realistic exit strategy What's Next Private mortgages can be valuable tools when used strategically. Connect with our team to explore whether private lending fits your situation—and develop a solid exit plan. More on this topic What Is a Private Mortgage? A private mortgage is a loan from an individual investor or private lending company rather than a bank or credit union. These alternative lenders typically: Have more flexible qualification criteria Make lending decisions based primarily on property value and equity Charge higher interest rates (typically 8-15%+) Offer shorter terms (usually 1-2 years) Key Distinction: Private mortgages are designed as short-term solutions, not permanent financing. The goal is to bridge a gap until you qualify for traditional lending. When Private Lending Makes Sense 1. Credit Challenges If your credit score is below 600 or you have recent credit issues (bankruptcy, consumer proposal, collections), private lenders may be your only option while you rebuild. 2. Self-Employment Income Verification Business owners who can't document income traditionally may qualify with alternative lenders based on business bank statements or net worth. 3. Time-Sensitive Purchases When you need to close quickly—perhaps to prevent foreclosure or secure an investment property—private lenders can fund within days rather than weeks. 4. Unique Properties Homes that don't meet bank criteria (rural properties, non-standard construction, mixed-use buildings) often require private mortgages. The True Cost of Private Mortgages Private mortgage costs extend beyond the interest rate: Typical Range Interest Rate 8% - 15%+ Lender Fee 1% - 3% of loan Broker Fee 1% - 2% of loan Legal Fees $1,000 - $2,500 Appraisal $300 - $500 Example: On a $300,000 private mortgage at 10% interest with 2% lender fee and 1.5% broker fee: Annual interest: $30,000 Lender fee: $6,000 Broker fee: $4,500 Total first-year cost: $40,500+ This is why private mortgages should only be used when the benefits outweigh these substantial costs. Exit Strategy: The Critical Factor No reputable mortgage broker will recommend a private mortgage without a clear exit strategy. Before proceeding, you need a realistic plan to: Improve credit sufficiently to qualify with B-lenders or banks Document income properly (for self-employed borrowers) Sell the property if other options fail Warning: Renewing with private lenders year after year creates a debt trap. Private Mortgage vs. B-Lender: Know the Difference B-Lenders (like Equitable Bank, Home Trust) sit between traditional banks and private lenders: Private Lender Rates 5% - 8% 8% - 15%+ Terms 1-5 years 6 months - 2 years Credit Min ~500-550 No minimum Income Verification Required Flexible If you qualify for B-lending, it's almost always preferable to private mortgages. The Bottom Line Private mortgages and alternative lenders serve an important role in Canada's mortgage ecosystem—they provide options when traditional paths are closed. But they're expensive and should only be used strategically with a clear exit plan. Wondering if you qualify for traditional or B-lender financing? Apply for a free assessment and explore all your options before considering private lending. More on this topic Ready to Get Started? Contact us today for personalized mortgage advice and competitive rates. Get Pre-Approved Call (416) 822-7357 Frequently Asked Questions What Is Private Lending? Private mortgages are loans from individuals or investment companies rather than banks or credit unions. What Is a Private Mortgage? A private mortgage is a loan from an individual investor or private lending company rather than a bank or credit union. These alternative lenders typically: Have more flexible qualification criteria Make lending decisions based primarily on property value and equity Charge higher interest rates (typically 8-15%+) Offer shorter terms (usually 1-2 years) Key Distinction: Private mortgages are designed as short-term solutions, not permanent financing. Q: Is private lending legal in Canada? A: Yes, completely legal. Private lending is a legitimate part of the mortgage market. Q: How fast can private mortgages fund? A: Often 3-7 days. Some can fund in 24-48 hours for urgent situations. Q: Can I get a private mortgage on a rental property? A: Yes—private lenders finance rentals, often more easily than primary residences. Q: What happens if I can't refinance at the end of the term? A: You may need to renew at potentially higher rates, find a new lender, or sell the property. Q: Do private mortgages report to credit bureaus? A: Most do not, which means they won't help rebuild credit directly. Q: Can I get a private mortgage on a rental property? A: Yes, private lenders often finance investment properties. In fact, they may prefer properties with rental income. Q: Are private mortgages legal? A: Absolutely. Private lending is a regulated industry. The key is working with reputable lenders and brokers. Q: What's the maximum LTV for private mortgages? A: Typically 75-80% of property value. Some lenders go higher but charge more.
