Private Home Equity Loans: Borrowing Against Your Home When the Bank Says No
A home equity loan turns part of your home's value into a lump sum. Banks offer them to borrowers who pass their income tests. When you don't — because of self-employed income, credit problems or high debt ratios — a private lender can lend the same equity as a private home equity loan, usually registered as a second mortgage. Here's how it works, what it costs and when it makes sense.
Key takeaways
- A private home equity loan is a lump sum secured on your home, usually as a private second mortgage behind your existing first.
- It's approved on equity and the property, not bank debt ratios or the stress test.
- Expect about 10% to 15% interest-only plus a 2% to 5% lender fee in 2026, for a one-year term.
- Most lenders allow total mortgages of up to about 75% of your home's value in strong urban markets.
What is a private mortgage?
A private mortgage is a loan secured on property by a non-bank lender — a mortgage investment corporation, a private lending company or an individual investor. A private home equity loan is one use of a private mortgage: borrowing a lump sum against equity you've already built. For bank options, see our home equity loans page.
What is a second mortgage?
A second mortgage is registered behind your first. Most private home equity loans are second mortgages: your existing mortgage stays exactly as it is, and the equity loan sits behind it. If you own your home outright, the equity loan is registered in first position instead and is priced lower.
How much equity can you use? Take a $1,100,000 home with a $650,000 first mortgage. At a 75% combined limit, total mortgages can reach $825,000, so up to $175,000 is available. A $120,000 equity loan would bring combined loan-to-value to 70%.
Why are private mortgage positions important?
Your equity loan's position decides its price. Behind a first mortgage, the lender is repaid only after the first mortgage, sale costs and any property tax arrears. That's why a second-position equity loan costs more than a first-position one, and why the lender cares whether your first mortgage is current. A default on either loan can put your home at risk.
Who lends private home equity loans?
- Mortgage investment corporations — pooled lenders under section 130.1 of the Income Tax Act, with rate cards by loan-to-value.
- Private lending companies that specialize in equity loans and second mortgages.
- Individual investors, arranged through a licensed mortgage brokerage.
Before going private, check whether a credit union or B lender would offer an income-qualified second mortgage. They're slower but usually cheaper and amortizing.
How does the payment work on a private home equity loan?
Most are interest-only: you pay the interest each month and repay the lump sum at the end. Using the example — $120,000 at 11.49%, compounded semi-annually:
| Item | Amount |
|---|---|
| Monthly interest-only payment | $1,122.42 |
| Interest over 12 months | about $13,469 |
| Lender fee (3%) | $3,600 |
| Broker fee, where one applies (1%) | $1,200 |
| Legal and appraisal (estimate) | about $2,100 |
| Effective first-year cost | about 18.0% of the net funds |
Some lenders offer amortizing payments instead. Paying the same $120,000 off over five years at 11.49% would cost about $2,623 a month — much higher, but the debt is gone at the end. Most private borrowers choose interest-only and plan to refinance.
What's the term of a private home equity loan?
Usually 12 months, sometimes up to 24. The idea is to use the money — consolidate debt, finish a renovation, pay CRA, bridge to a sale — then refinance it into your first mortgage at its next renewal, when the combined balance can move to a bank or B lender without a penalty. See refinancing a private mortgage.
What are the criteria to get approved for a private home equity loan?
- Equity: combined loan-to-value within the lender's limit — commonly up to 75% for urban detached homes, about 65% for condos and smaller centres.
- An appraisal of the property.
- Your first mortgage in good standing, or brought current from the advance.
- Proof you can carry both payments — income, bank statements, rent or a prepaid interest reserve.
- A clear purpose and exit, such as debt consolidation now and a refinance at renewal.
Why are private home equity loan rates higher than traditional mortgages?
The lender is usually in second position, uses investor capital instead of deposits, can't insure the loan and is lending to someone a bank declined. A bank home equity line, by contrast, sits on a borrower who passed the stress test and is priced near prime. The gap is the price of approval without bank qualification — worth paying for a short, well-defined need, and not for years.
What are the pros and cons of private home equity loans?
| Pros | Cons |
|---|---|
| Access equity without bank income tests or the stress test | Much higher cost than a bank equity loan or HELOC |
| Keep your existing low-rate first mortgage | Upfront fees reduce the cash you receive |
| Lump sum, funded quickly | Interest-only: the balance stays the same |
| Can consolidate 20%-plus card debt into one lower payment | Short term — refinance or renewal needed |
| Flexible use of funds | Your home is security; default risks enforcement |
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
Usually, yes. Most private home equity loans are registered as second mortgages behind an existing first. If there's no mortgage on the home, it's registered in first position.
From a private lender, often yes, as long as you have enough equity and can show how you'll make the payment. Credit affects the rate and how much you can borrow.
Yes. Paying tax arrears is a common use, and lenders often pay CRA directly from the advance.
Many private equity loans fund within a week of the appraisal, sometimes sooner.
See how much equity you can access
We'll compare private equity loans with B-lender and credit-union seconds and show the total cost of each.