For many Canadians, securing a mortgage through a traditional lender like a bank or credit union isn’t always an option. Whether it’s due to strict lending requirements, self-employment income, bad credit, or unique property types, private mortgage lending can offer an alternative financing solution.
But how does private mortgage lending work? Who qualifies for it? And what are the risks and benefits? In this guide, we’ll break down everything you need to know about private mortgages in Canada.
What Is Private Mortgage Lending?
Private mortgage lending involves borrowing money from an individual or private lending company instead of a traditional bank or financial institution. These lenders operate outside of the typical mortgage approval system and are often more flexible with their lending criteria.
Private mortgages are commonly used by:
✔ Self-employed individuals who don’t have traditional income verification.
✔ Homebuyers with low credit scores who don’t qualify for bank mortgages.
✔ Investors purchasing unconventional properties that banks may not finance.
✔ Borrowers who need fast funding and can’t wait for long approval processes.
✔ Homeowners looking for a short-term solution before refinancing with a traditional lender.
Unlike banks that rely on strict regulations, private lenders assess risk based on the property itself, the borrower’s financial situation, and the potential for repayment.
How Do Private Mortgages Work?
The process for securing a private mortgage is simpler and faster than with a traditional lender:
1️⃣ Apply Through a Private Lender or Broker
- Unlike banks, private lenders don’t always require extensive paperwork or perfect credit.
2️⃣ Property-Based Lending Assessment
- Lenders focus more on the value of the home and less on credit history or income.
- Loan-to-value (LTV) ratios are key—most private lenders will only finance up to 75% to 85% of a home’s value.
3️⃣ Short-Term Loan Structure
- Private mortgages are often short-term loans, usually 6 months to 3 years.
- Borrowers usually refinance into a traditional mortgage once their financial situation improves.
4️⃣ Higher Interest Rates Than Banks
- Since private mortgages involve more risk for lenders, interest rates are typically higher than those of banks.
- Rates can range from 7% to 15%, depending on the lender, the borrower’s risk level, and market conditions.
Pros and Cons of Private Mortgage Lending
✅ Benefits of Private Mortgages
✔ Easier Approval Process – Less focus on credit score, more on property value.
✔ Faster Funding – Funds are often available in days, not weeks.
✔ Flexibility – Custom loan structures that fit unique financial situations.
✔ Short-Term Solution – Ideal for those who plan to refinance into a traditional mortgage later.
❌ Potential Drawbacks
❌ Higher Interest Rates – Expect to pay more than with a bank mortgage.
❌ Larger Down Payment Required – Private lenders typically require at least 15-25% down.
❌ Additional Fees – Broker fees, lender fees, and legal costs can add up.
❌ Shorter Loan Terms – Not a long-term solution—borrowers will eventually need to refinance or pay off the loan.
When Should You Consider a Private Mortgage?
Private mortgages aren’t for everyone, but they can be a good option if:
✔ You need quick financing for a home purchase or investment.
✔ You have bad credit or unconventional income sources (like self-employment).
✔ You’re buying a non-traditional property that banks won’t finance.
✔ You need temporary financing while waiting to qualify for a better mortgage.
Before choosing a private mortgage, it’s important to compare options and understand the full costs involved.
How to Find the Right Private Mortgage Lender
Because private lending is less regulated than traditional banking, it’s crucial to work with a trusted mortgage broker who can help connect you with reputable lenders.
A mortgage broker can:
✔ Compare multiple private lenders to find the best rates.
✔ Negotiate better terms on your behalf.
✔ Ensure transparency by explaining all fees and conditions.
✔ Help plan your exit strategy for refinancing into a lower-rate mortgage later.
If you’re considering a private mortgage, use our Mortgage Payment Calculator to estimate your costs and explore your financing options.
Final Thoughts
Private mortgage lending in Canada offers flexibility and fast approval, making it a great alternative for those who don’t fit traditional lending criteria. However, it’s important to carefully weigh the higher costs and shorter terms before committing to a private loan.
If you need expert guidance on whether a private mortgage is right for you, Contact The Local Broker to explore your options.
