Private First Mortgages: When You Need One and What It Really Costs
A private first mortgage replaces — or takes the place of — a bank mortgage as the main loan on your home. It's the right tool when you need to buy or refinance and no bank or B lender will approve you in time. It's also the most expensive way to hold your whole mortgage balance, so the question isn't only "can I get one?" but "how quickly can I get out of it?"
Key takeaways
- A private first mortgage sits in first position on title, so it carries the lowest rate of any private loan — typically about 7% to 11% in 2026.
- Expect a lender fee of about 1% to 3%, plus legal, appraisal and sometimes a broker fee.
- Most lenders go to about 75% to 80% of appraised value on strong urban properties.
- Terms are usually 12 months, interest-only. Plan the refinance back to a bank before you sign.
What is a private mortgage?
A private mortgage is a loan secured on your home by a non-bank lender — an individual investor, a private lending company or a mortgage investment corporation (MIC). Private lenders aren't bound by the federal stress test or bank debt-service limits, so they approve on the property and your equity, and charge more for the flexibility.
A private first mortgage is simply a private mortgage in first position: it's the main mortgage on the property, either because it paid off the previous lender or because it financed a purchase. See our private first mortgage page for current terms.
What is a second mortgage — and how is a first different?
A second mortgage is borrowed behind an existing first mortgage, leaving the first in place. A first mortgage is the senior loan: it's paid first from any sale. That's why first-mortgage rates are lower — and why choosing between them matters:
| Private first mortgage | Private second mortgage | |
|---|---|---|
| What it does | Replaces your existing mortgage, or funds a purchase | Adds borrowing on top of your existing mortgage |
| Typical rate (2026) | About 7% to 11% | About 10% to 15% |
| Typical lender fee | 1% to 3% | 2% to 5% |
| Balance it applies to | Your whole mortgage | Only the new money |
| Usually best when | The existing mortgage is maturing, in default, or must be paid out | Your first mortgage has a low rate or a big penalty to break |
If your bank mortgage has a low rate and two years left, a private second on just the new money is usually cheaper than moving the whole balance to a private first.
Why are private mortgage positions important?
Position sets the order of repayment if the property is sold to recover a debt. A first-position lender is repaid in full before anyone else, so it can lend at a lower rate and a higher loan-to-value than a second or third. Position also affects what you can do later: a private first lender may allow a second mortgage behind it, or may prohibit further charges. When you refinance out, the first is the loan your new bank or B lender pays off.
Who lends private first mortgages?
- Mortgage investment corporations. Pooled funds under section 130.1 of the Income Tax Act; often the lowest private first-mortgage pricing for good urban properties.
- Private lending companies. Lend their own capital or investors' money, often with faster turnaround on unusual files.
- Individual investors. Arranged through a licensed brokerage, sometimes as a syndicated loan with several investors sharing one mortgage.
Whoever funds it, the loan should come to you through a licensed brokerage with a written disclosure of the rate, fees, term and prepayment rules.
How does the payment work on private first mortgages?
Payments are almost always interest-only, monthly. Fees come off the advance. Here's a $574,000 private first mortgage on an $820,000 home (70% loan-to-value) at 9.49%, compounded semi-annually:
| Item | Amount |
|---|---|
| Monthly interest-only payment | $4,452.15 |
| Interest over the 12-month term | about $53,426 |
| Lender fee (2%) | $11,480 |
| Broker fee, where one applies (1%) | $5,740 |
| Legal and appraisal (estimate) | about $2,100 |
| Effective first-year cost | about 13.1% of the net funds |
| Balance owing at maturity | $574,000 |
Because nothing comes off the principal, every month you stay in a private first costs about $4,450 here. Shaving even a few months off the time to refinance saves real money.
What's the term of a private first mortgage?
Typically 12 months, sometimes 6, 18 or 24. Short terms suit the usual reasons for a private first: rebuilding credit after a consumer proposal, waiting for two years of self-employed tax returns, closing a purchase before a sale, or stopping a power of sale. Many are closed for the first three to six months, then open with a prepayment charge such as three months' interest.
What are the criteria to get approved for a private first mortgage?
- Loan-to-value of about 75% to 80% on a marketable urban property; lower for condos, rural and specialty properties.
- A full appraisal ordered by the lender.
- Evidence the payment can be made: bank statements, business deposits, rental income or a prepaid interest reserve.
- A credible exit: refinance to a bank or B lender, sale of the property, or another specific source of repayment.
- Title review: property tax arrears, judgments and liens are paid out of the advance or block the deal.
There's no stress test, and credit score is a pricing factor rather than a hard cut-off. Self-employed borrowers should also read our self-employed mortgage page — some can skip private lending altogether.
Why are private first mortgage rates higher than traditional mortgages?
A bank funds a mortgage with deposits and, for insured loans, government-backed securities; it lends to borrowers who pass the stress test. A private first-mortgage lender uses investors' money, can't insure the loan, and lends to borrowers the banks declined. It prices in three things: the investor's required return, the risk of arrears and enforcement, and the work of a short-term loan that has to be underwritten, funded and discharged within a year. The lender fee covers the last of those.
What are the pros and cons of a private first mortgage?
| Pros | Cons |
|---|---|
| Lowest-cost form of private lending — first position | Rate applies to your whole mortgage balance |
| Can pay out a maturing, defaulted or uncooperative lender | Lender fee, legal and appraisal on every new deal |
| Fast closings for purchases and deadlines | Interest-only — no equity built from payments |
| Approval on equity, not bank ratios | Short term: you must refinance, sell or renew |
| One payment instead of a first and a second | Breaking a low-rate bank mortgage to get one can be costly |
Sources
This article is general information, not financial or legal advice. Rate and fee ranges are typical of the private market in 2026 and vary by lender, property and file. Examples are illustrative and rounded. Mortgage financing is subject to lender approval.
Frequently asked questions
Yes. Private lenders finance purchases, usually with at least 20% to 25% down, and the property must appraise at the purchase price. It's common for buyers who are self-employed, new to Canada or rebuilding credit.
Per dollar, yes — first-position rates and fees are lower. In total, it depends: a first applies its rate to your whole balance, while a second applies a higher rate only to the new money.
As briefly as possible. Most borrowers aim to refinance to a bank or B lender within one or two terms, once the issue that sent them private is fixed.
Many private lenders don't report to the credit bureaus, so a private mortgage paid on time may not help your score directly. Keep your own records of on-time payments for your next lender.
Need a private first mortgage?
We'll compare MICs and private lenders on rate, fee and terms, and show you the refinance plan to get you back to a bank.