Private Mortgage vs. Traditional Mortgage: Which One Should You Choose?

Understanding the Key Differences

In today’s dynamic housing market, securing a mortgage that fits your financial goals is just as important as finding the right home. For many Canadians, the first question isn’t just “How much can I borrow?”—it’s “Who should I borrow from?”

Two common mortgage options in Canada are traditional bank mortgages and private mortgages. While banks have long been the default choice, more people are exploring private lenders to meet their financing needs, especially in situations where bank loans are out of reach.

This guide provides a complete breakdown of private mortgage vs bank mortgage Canada, helping you compare rates, approval processes, repayment terms, and when it makes sense to choose one over the other.

If you’re a first-time homebuyer, a real estate investor, or someone facing challenges with traditional lenders, this article will help you make a confident mortgage decision tailored to your situation.

What Is a Traditional Bank Mortgage?

A traditional mortgage in Canada is typically issued by banks, credit unions, or major financial institutions. These lenders follow stringent lending guidelines set by regulatory bodies such as the Office of the Superintendent of Financial Institutions (OSFI).

Common Features of Bank Mortgages:

Lower interest rates (especially if you qualify for a prime rate)
Longer amortization periods (15 to 30 years)
Strict approval requirements including income verification, employment history, and credit checks
Government-backed insurance for high-ratio mortgages (if you put less than 20% down)

While these mortgages are ideal for borrowers with strong credit and consistent income, they can be less accessible for self-employed individuals, newcomers to Canada, or those with unique income structures.

What Is a Private Mortgage?

A private mortgage is offered by individuals or private lending companies that aren’t regulated like banks. These lenders are not restricted by the same rules as federally regulated financial institutions, which gives them more flexibility in assessing borrowers.

Key Traits of Private Mortgages:

Higher interest rates, due to increased risk taken on by the lender
Shorter loan terms, often 1–3 years
Equity-focused lending, meaning the decision is based more on the value of your home than your credit score
Fast approvals, often within days

Private mortgages are considered alternative lending options, often used when borrowers are rejected by banks or need quick access to capital.

Interest Rates: How Do Private Mortgage Rates Compare?

One of the most noticeable differences between private mortgages and bank mortgages in Canada is the interest rate.

Bank Mortgage Rates

Typically between 5% to 7% (as of early 2025, subject to Bank of Canada policies)
Based on your credit score, debt-to-income ratio, and income verification
May offer fixed or variable rate options

Private Mortgage Rates

Usually higher, ranging from 8% to 15%, depending on the loan-to-value ratio (LTV), the borrower’s profile, and the lender
May include lender fees and brokerage fees upfront
Not usually available as a variable rate

Private lenders compensate for increased risk with higher returns—but borrowers benefit from flexibility and accessibility.

🧠 Pro Tip: If your mortgage need is temporary (i.e., you’re refinancing or flipping a property), the higher rate from a private lender might be worth the faster approval and fewer barriers.

Approval Process: Private Lenders vs. Banks

The approval process is one of the most significant differences between the two mortgage options in Canada.

Bank Mortgage Approval:

Requires a high credit score (usually 680 or above)
Proof of stable employment and income
Debt servicing ratios (GDS/TDS) must fall within federal guidelines
Full appraisal and underwriting process

Expect the entire process to take 2 to 4 weeks, sometimes longer in peak seasons.

Private Mortgage Approval:

Faster approval, sometimes in 24 to 72 hours
Focuses more on the property’s value and home equity
Less emphasis on income or credit history
Minimal documentation required

✅ Ideal for: Self-employed individuals, real estate investors, borrowers with bruised credit, or those who need bridge financing.

Repayment Terms and Flexibility

Traditional Mortgages

Longer amortization (15–30 years)
Can include prepayment privileges, allowing you to pay down your loan faster
Structured monthly payments of principal and interest

Private Mortgages

Short-term loans (usually 1–3 years)
Interest-only payments are common
Less structured; terms can be negotiated with the lender
Penalty fees may apply if the loan is not paid or refinanced at maturity

If you’re looking for long-term stability, traditional bank mortgages are ideal. But if you need short-term financing with fewer restrictions, a private mortgage can give you the breathing room you need.

When Should You Choose a Private Mortgage Over a Bank Mortgage?

A private mortgage can be the right move under specific circumstances. Consider private lending if:

Your mortgage application was rejected by a bank due to credit, income, or debt concerns.
You’re self-employed, with fluctuating income that banks may not understand or count toward qualification.
You’re purchasing an unconventional property, such as a cottage, rental unit, or fixer-upper.
You need fast access to capital, and can’t wait 3+ weeks for bank approval.
You’re in a time-sensitive situation, such as avoiding foreclosure or paying off a tax lien.
You’re bridging the gap between two properties while waiting to sell one.

Private mortgages are also helpful in debt consolidation, home renovation projects, or investments where time is critical.

Is a Private Mortgage a Long-Term Solution?

Not usually. Private mortgages are often stop-gap solutions meant to hold you over until you can refinance with a bank or repay the loan through another means.

⚠️ Caution: If you rely on a private mortgage without a clear exit plan, you risk higher penalties and fees when the term ends.

Pros and Cons At a Glance

Feature	Bank Mortgage	Private Mortgage
Interest Rates	Low	High
Approval Time	Weeks	Days
Credit Score Needed	High	Flexible
Repayment Term	Long (15–30 years)	Short (1–3 years)
Flexibility	Low	High
Best For	Stability	Short-term or urgent needs

Final Thoughts: Making the Right Mortgage Decision

Both private and traditional mortgages play essential roles in the Canadian lending ecosystem. The best option depends on your financial health, the urgency of your needs, and your long-term plans.

If you have strong credit, stable income, and no rush, a bank mortgage is likely your best bet. But if you’re facing credit challenges, working with tight deadlines, or need custom financing solutions, a private mortgage can be a powerful tool—if used wisely.

Take the Next Step: Talk to a Trusted Private Mortgage Professional

Still unsure which route to take?

✅ Get expert advice tailored to your needs at Equity Mainly Matters. Whether you’re weighing mortgage options in Canada or ready to act fast, their team can help you:

Compare private lender vs bank options
Understand the mortgage rate comparison
Find a solution that fits your timeline and financial goals

👉 Contact Equity Mainly Matters today for a free consultation and get one step closer to your real estate goals.