What Is a Private Mortgage in Canada and How Does It Work?

When purchasing a home or refinancing an existing mortgage in Canada, borrowers typically turn to traditional banks or credit unions. However, not everyone qualifies for a bank mortgage due to factors like low credit scores, self-employment, or unique financial circumstances. This is where private mortgages come into play.

A private mortgage is an alternative financing option provided by private lenders instead of traditional financial institutions. These loans are often more flexible but may come with higher interest rates and shorter repayment terms.

This guide explains how private mortgages work, their benefits and risks, and who they are best suited for. If you’re considering a private mortgage, speak to our experts at Equity Mainly Matters to explore your options.

What Is a Private Mortgage?

A private mortgage in Canada is a loan secured by real estate, provided by a non-traditional lender rather than a bank or financial institution. These lenders include:

Individual lenders (private investors who lend their money).
Mortgage investment corporations (MICs) regulated under the Income Tax Act.
Lending syndicates (groups of investors pooling funds).
Private mortgage brokers or companies that specialize in alternative lending.

Unlike banks, private lenders set their own terms, making them more flexible in approving borrowers who may not meet traditional mortgage requirements.

For more details on private mortgage solutions in Canada, visit Equity Mainly Matters Private Mortgage Page.

How Private Mortgages Differ from Traditional Bank Mortgages in Canada

Feature	Traditional Mortgage	Private Mortgage
Lender	Banks, credit unions	Private individuals, MICs, mortgage brokers
Approval Process	Strict income & credit checks	More flexible, asset-based approval
Interest Rates	Lower (5-7%)	Higher (7-15%)
Repayment Term	15-30 years	6 months to 3 years
Eligibility	Based on income & credit	Based on home equity & assets
Approval Speed	Takes weeks/months	Approved in days
Payment Structure	Principal & interest	Often interest-only

Unlike banks, private mortgage lenders focus on the property’s value and the borrower’s equity rather than strict income and credit requirements.

Who Might Consider a Private Mortgage?

1. Individuals with Poor Credit or Non-Traditional Income

Many Canadians with low credit scores or irregular income struggle to qualify for bank mortgages. Private lenders focus on property value rather than credit history, making them a suitable alternative.

2. Borrowers Facing Urgent Financial Needs

Private lenders can approve and fund mortgages quickly, helping borrowers avoid foreclosure, pay off high-interest debt, or access cash in emergencies.

If you need help stopping a power of sale, visit our Stop Power of Sale Page.

3. Self-Employed Borrowers

Self-employed Canadians often have strong finances but irregular income that doesn’t meet strict bank mortgage requirements. Private lenders offer solutions based on home equity rather than tax returns.

Learn more about Self-Employed Mortgages.

4. Borrowers Looking for Bridge Financing

Private mortgages are often used as short-term solutions to bridge the gap until borrowers qualify for a traditional mortgage.

If you need a second mortgage for bridge financing, check out our Second Mortgage Page.

Pros and Cons of Private Mortgages

Pros

✅ Easier Approval – Private lenders focus on home equity and asset value rather than strict income and credit requirements.

✅ Fast Processing – Private mortgages can be approved within days, making them ideal for urgent situations.

✅ Short-Term Solution – Ideal for borrowers needing temporary financing before transitioning to a traditional mortgage.

✅ Interest-Only Payments Available – Lower monthly payments compared to traditional loans.

✅ Flexibility for Self-Employed & Newcomers – Alternative for those who struggle with bank requirements.

Cons

❌ Higher Interest Rates – Rates typically range from 7-15%, significantly higher than traditional bank mortgages.

❌ Additional Fees – Borrowers must pay broker fees, lender fees, legal fees, and possibly appraisal costs.

❌ Shorter Repayment Terms – Most private mortgages last 6 months to 3 years, requiring refinancing or lump-sum repayment.

❌ Risk of Predatory Lending – Some private lenders operate with less regulation, making it crucial to work with reputable professionals.

How Private Mortgages Work in Canada

Application & Property Assessment
- Borrowers submit details about their property, financial situation, and loan request.
- Private lenders assess property value and equity, not just credit history.
Approval & Offer
- The lender offers terms including interest rate, repayment schedule, and fees.
- Borrowers should compare multiple offers to secure the best rate.
Legal Process & Funding
- A lawyer facilitates the legal paperwork and registers the mortgage on the property.
- Funds are released, often within a few days.
Repayment & Exit Strategy
- Borrowers must make regular interest payments and have a plan to repay the loan in full.

Need help estimating your payments? Try our Home Equity Loan Calculator.

Common Uses for Private Mortgages

Debt Consolidation – Combining high-interest debts into a single mortgage payment.
Home Renovations – Financing urgent home repairs or upgrades.
Bridge Financing – Securing funds between property sales.
Emergency Situations – Avoiding foreclosure or power of sale.

For more information, visit our Debt Consolidation Mortgage Page.

Is a Private Mortgage Right for You?

When to Consider a Private Mortgage

You have significant home equity but don’t qualify for a bank mortgage.
You need fast approval and can’t wait for a traditional lender.
You plan to use the private mortgage as a short-term solution and refinance later.
You have a clear exit strategy for repaying the loan.

When to Avoid a Private Mortgage

You qualify for a traditional mortgage with better rates.
You don’t have a clear repayment plan, increasing foreclosure risk.
You’re uncomfortable with higher interest rates and additional fees.

Conclusion

Private mortgages in Canada offer a valuable alternative for borrowers who don’t qualify for traditional financing. Whether you are self-employed, have bad credit, or need fast access to funds, private lenders provide flexible solutions based on home equity.

However, they come with higher interest rates, shorter terms, and additional fees, making it crucial to weigh the pros and cons before proceeding. If you choose to go the private mortgage route, work with a trusted mortgage broker, verify the lender’s credibility, and ensure you have a solid exit strategy.

For expert advice on securing a private mortgage, contact us at Equity Mainly Matters today.