Are Private Mortgages Safe? What You Need to Know Before Borrowing

The Concerns Surrounding Private Mortgages

Private mortgages have become increasingly popular in Canada as housing prices rise and traditional lenders tighten their mortgage criteria. These alternative loans—offered by individuals or private mortgage corporations—can be a lifeline for borrowers who are self-employed, have bruised credit, or need fast funding.

But with growing popularity comes growing concern: Are private mortgages safe in Canada?

In this article, we’ll break down everything you need to know before borrowing from a private lender. We’ll explore private lending regulations, how to verify a lender’s legitimacy, common private mortgage risks, and critical questions to ask before signing any agreement.

Whether you’re a first-time homebuyer or a seasoned investor, understanding the mortgage fraud prevention steps and legal safeguards will help you borrow with confidence.

Understanding Private Lender Regulations in Canada

Private mortgages in Canada are governed under provincial laws, and private lenders are not regulated in the same way as banks or credit unions. This doesn’t mean they are unregulated—it just means the compliance requirements differ.

Who Regulates Private Lenders?

Mortgage brokers and agents working with private lenders must be licensed by their provincial regulatory body (e.g., FSRA in Ontario).
Private mortgage investment corporations (MICs) are also subject to securities regulations and must meet transparency requirements.
In most provinces, private lending practices fall under real estate and consumer protection laws.

🛑 Important: If a lender or broker is not licensed, that’s a red flag.

Key Regulations You Should Know:

Private lenders must disclose the full cost of borrowing, including fees and interest.
Mortgages must be registered legally on title.
Borrowers have the right to independent legal advice before signing.
In Ontario, the Mortgage Brokerages, Lenders and Administrators Act (MBLAA) protects borrowers by enforcing ethical lending practices.

How to Verify a Legitimate Private Lender

Before signing any mortgage agreement, it’s critical to verify the legitimacy of the lender or broker. Here’s how you can do that:

✅ Steps to Take:

Check the License
Use your provincial regulator’s public registry to ensure the mortgage broker or agent is licensed (e.g., FSRA Ontario License Check).
Ask for Credentials
Reputable private lenders will provide references, company information, and legal documentation willingly.
Google Their Business Name
Look for verified reviews, Better Business Bureau ratings, or red flags such as unresolved complaints or lawsuits.
Request an Independent Appraisal
A legitimate lender won’t pressure you to use their appraiser. Insist on a neutral third party.
Get Independent Legal Advice
Hire a real estate lawyer to review all documents before signing. This is your best defense against mortgage fraud.

Common Risks and How to Avoid Them

Like any financial product, private mortgages come with risks. But by knowing what to look out for, you can take proactive steps to avoid costly mistakes.

⚠️ Common Private Mortgage Risks:

Unlicensed or Predatory Lenders
Some unregulated lenders charge excessive interest and hidden fees or may operate scams.
Balloon Payments
Many private mortgages are short-term and may require a large lump sum at the end of the term—something many borrowers overlook.
Hidden Fees
Lender fees, brokerage fees, legal fees, and discharge penalties can add up quickly if not properly disclosed.
Mortgage Fraud
Fake lenders may ask for upfront “application fees” and disappear. Others may misrepresent terms.
Foreclosure Risk
If you default, private lenders may act faster than banks to recover funds through power of sale or foreclosure.

✅ How to Protect Yourself:

Review the mortgage commitment carefully with a lawyer.
Avoid signing under pressure or agreeing to terms you don’t fully understand.
Ask for a full disclosure of fees, interest, penalties, and timelines.
Plan your exit strategy: Know how you’ll repay or refinance before the term ends.

Questions to Ask Before Accepting a Private Mortgage

Before finalizing your decision, ask the following due diligence questions to ensure you’re entering a safe and transparent agreement:

1. Is the lender licensed and registered?

Confirm their credentials through your provincial regulator.

2. What are the total costs of borrowing?

Request a breakdown of interest rates, fees, legal costs, and penalties.

3. What happens at the end of the term?

Will you be expected to pay off the full balance? Are there options to refinance?

4. Is there a prepayment penalty?

Know if there are restrictions or fees for early repayment.

5. Is the mortgage registered on title?

Ensure it is legally secured on your property through the land registry.

6. Do I need mortgage insurance?

Private lenders typically don’t offer CMHC-insured loans, so additional insurance may be needed depending on the loan structure.

7. Will I receive independent legal advice?

If not, walk away—this is a basic protection you shouldn’t forgo.

Conclusion: Ensuring a Safe Borrowing Experience

So, are private mortgages safe in Canada? Yes—when done right.

While private mortgages carry higher interest rates and shorter terms, they can be a legitimate and secure option for borrowers who do their homework. The key to a safe borrowing experience lies in:

Choosing licensed, reputable lenders
Asking smart questions
Getting independent legal advice
Understanding your exit plan before entering the agreement

If you’re considering a private mortgage and want expert guidance tailored to your situation, don’t navigate the process alone.

✅ Take the Next Step with Confidence

Connect with a licensed and trustworthy private mortgage advisor at
👉 Equity Mainly Matters to explore safe and flexible mortgage solutions built around your goals.

Whether you’re refinancing, consolidating debt, or navigating a tricky approval process, their team can help you borrow smart—and borrow safe.