Private Mortgages

Private Mortgages in Ontario: Your Introductory Guide

image of a private mortgage document with a calculator and model home on top of it

Introduction to Private Mortgages

The real estate financing market in Ontario and in cities like Ottawa has expanded in recent decades to encompass more than traditional bank mortgages, otherwise known as institutional lending. The lender options for clients in Ontario have broadened to include B lenders, who often take on unique and higher-risk borrowing situations than your typical A lender such as a bank. Another alternative lending route for unique and often shorter-term financing situations is private mortgages, provided by private lenders and investors.

Private lending has become a viable solution for many homeowners and prospective buyers who find themselves in unique financial circumstances that require alternative lending philosophies and approaches. Whether you’re looking at refinancing options, considering a home purchase, or facing unique financial circumstances, understanding private mortgage options as a solution is crucial. As an experienced mortgage agent, I’m here to guide you through the intricacies of private lending in Ontario.

What Are Private Mortgages?

Private mortgages are loan agreements facilitated not by banks or traditional financial institutions, but by private entities or individuals. These lenders can be investment companies, private funds, or even individuals willing to lend money secured against real estate.

Why Consider a Private Mortgage?

  • Flexibility in Approval: Private lenders often have less stringent criteria than banks, making them ideal for those with unique circumstances.

  • Quick Processing: The process of securing a private mortgage can be faster than traditional mortgages, crucial for time-sensitive transactions.

  • Solution for Various Needs: Whether it’s for refinancing, purchasing a unique property, or a bridge loan, private mortgages offer versatile solutions.

Understanding the Role of Private Lenders

Private lenders step in where traditional lenders might hesitate. They often focus on the property’s value and potential rather than solely on the borrower’s creditworthiness or income. 

    • Investment Focus: Private lenders are primarily interested in the property’s equity and market value.
    • Risk Assessment: They assess loan-to-value (LTV) ratios to determine lending risk, typically preferring lower LTVs.
image of a private mortgage application that has been approved

Navigating the Private Mortgage Process

  1. Initial Consultation: Discuss your financial situation and needs with a knowledgeable mortgage agent.

  2. Finding the Right Lender: Your mortgage agent will help you find a suitable private lender, considering your unique needs and the lender’s terms.

  3. Assessment and Approval: The lender will assess the property value, your financial situation, and propose terms.

  4. Legal Documentation: All agreements are legally documented, ensuring clarity and legality in the arrangement.

The Benefits and Potential Drawbacks of Private Mortgages

The Benefits of Private Mortgages

  • Solution for Unique Situations: Ideal for those who might not qualify for traditional bank loans due to various reasons like self-employment or credit issues.
  • Speed: Faster processing and approval times can be crucial in competitive real estate markets or for urgent financial needs.
  • Customization: Loan terms can be more flexible and tailored to individual circumstances.


Potential Drawbacks

  • Higher Interest Rates: Private mortgages often come with higher interest rates compared to traditional mortgages.
  • Shorter Loan Terms: These loans typically have shorter terms, requiring a more immediate repayment strategy.
  • Fees: Expect fees for loan setup, which may be higher than those of traditional mortgages.

Choosing Between Private and Traditional Mortgages

  • Assessing Your Needs: Private mortgages are better suited for short-term financial strategies such as anywhere from 6 months to 2 years, or when traditional financing is not an option. The core utility of a private mortgage is to address immediate needs in a unique financing situation while incorporating an exit strategy for the end of the term. 
  • Understanding Costs: Weigh the higher costs against the benefits of securing a mortgage that aligns with your immediate needs. Costs will include lender administration fees between 1%-3%, legal fees, broker fees, and various approaches to the interest and regular payment schedule. All relevant fees are discussed and addressed before committing to the financing.
  • Long-Term Planning: Consider how a private mortgage fits into your long-term financial goals and whether it’s a stepping stone to traditional financing. A common scenario for a private mortgage borrower is to secure a real estate purchase at a time when their income is irregular and/or when a borrower has a history of tarnished credit. Private mortgages are a common solution to address these scenarios while factoring in the longer-term plan to exit the private lender market into an A or B lender solution.  

Refinancing with Private Mortgages

Refinancing through private mortgages can be an effective strategy to consolidate debt, access home equity, or improve cash flow, especially when traditional refinancing routes are not viable. A common type of scenario where this route is the most optimal is when there are pre-existing credit uses, disruptions to the regularity of income, and/or traditional lending solutions that consider financing to be beyond their risk tolerance and policies. Refinancing with a private lender could be the last pathway of a credit solution before needing to address the sale of the property, a consumer proposal, or bankruptcy with the support of a representative such as BDO Canada

Every scenario is different, however, due to the fact that private lenders tend to place an emphasis of importance on the property itself as collateral, this allows for them to be a valuable option in situations where other lenders will not lend against the property. 

image of a sold home using a private mortgage

Private Mortgages for Home Purchase

Private mortgages can facilitate home purchases, particularly for properties that may not qualify for bank financing or for buyers who need swift financing.

Scenarios like these can range from attempting to get financing on an obscure remote property that has retained a competitive market value but falls outside of traditional lending guidelines. Or in scenarios where you as the borrower have a complex or limited financial situation, but you are interested in buying another rental property, or primary residence. Another example could be that you have made an offer on a place and the initial financing fell through, so you are faced with the need to get alternative financing on short notice in order to secure the property. 

For each of these situations, the possible solution could be a private mortgage. As your mortgage agent, I will walk you through the available options along with their associated costs to help you make the most informed decision that is suitable to your needs and goals. 

Working with a Mortgage Agent

  • Expert Guidance: Leverage the expertise of a mortgage agent to navigate the complexities of private lending. We guide you through each step of the process from beginning to end. 
  • Tailored Solutions: Get personalized solutions that align with your financial situation and real estate goals. We break down the unique aspects of your needs and goals, then we align you with solutions that best address those aspirations. 
  • Support Through the Process: Benefit from professional support, from finding the right lender to closing the deal. The is a lot that happens behind the scenes, and this is all taken care of by your mortgage agent with the goal of making the process as easy, clear, and seamless as it can be. 
image illustrating FAQs about private mortgages

Working with a Mortgage Agent

  • FAQs on Private Mortgages

    • What are the requirements for obtaining a private mortgage?
    • How do private mortgage interest rates compare to bank rates?
    • Can I switch from a private mortgage to a traditional mortgage later?
  • 1. What are the requirements for obtaining a private mortgage?

    The requirements for obtaining a private mortgage can vary depending on the lender, but generally include:

    • Equity in Property: Private lenders typically focus on the amount of equity you have in your property. A higher amount of equity can typically increase your chances of approval.
    • Credit Score Considerations: While private lenders may be more flexible with credit scores, a better credit score can help in securing more favorable terms.
    • Proof of Income: You may need to provide some proof of income, but the requirements are usually less stringent than traditional lenders. This can include bank statements or declared income for self-employed individuals.
    • Property Appraisal: A current appraisal of your property will likely be required to assess its value and condition.
    • Debt-to-Income Ratio: This may still be considered to ensure you can manage the loan repayments, but again, private lenders may have more flexible criteria.
    • Down Payment: If you are purchasing a property, private lenders usually require a larger down payment compared to traditional banks.


2. How do private mortgage interest rates compare to bank rates?

Private mortgage interest rates are generally higher than those offered by traditional banks. This difference reflects the higher risk that private lenders take on, especially when lending to borrowers who don’t qualify for traditional loans due to credit issues, income verification challenges, or non-conventional properties. The exact rate will depend on various factors, including:

  • The Lender’s Assessment of Risk: Factors like property type, location, borrower’s credit history, and loan-to-value ratio.
  • Market Conditions: Prevailing interest rates and real estate market trends.
  • Loan Terms: Duration and structure of the loan.


It’s important to note that while private mortgage rates are higher, they offer a solution in situations where traditional financing is not an option.


3. Can I switch from a private mortgage to a traditional mortgage later?

Yes, it is often possible to switch from a private mortgage to a traditional mortgage later, and this is a common strategy for many borrowers. To make this transition, consider the following:

  • Improving Credit Score: Use the time during your private mortgage to improve your credit score by making all loan payments on time and managing other debts responsibly.
  • Stabilizing Income: For those who are self-employed or have variable income, use the period to establish a more consistent income record.
  • Building Equity: As you pay down your private mortgage and if your property value increases, your equity grows, making you a more attractive candidate to traditional lenders.
  • Refinancing: Once you meet the criteria for a traditional mortgage, you can apply for refinancing. This will involve a new application and credit check, and possibly an appraisal of your property.


Transitioning to a traditional mortgage typically involves planning and a period of financial stability and improvement. It’s advisable to work with a mortgage professional to develop a strategy for making this switch when the time is right.