Private Mortgages in Canada: How They Work, Who Lends and What They Cost
A private mortgage is a loan secured by your home from a lender that isn't a bank, credit union or other regulated deposit-taker. It's approved mainly on your equity rather than your income, it usually lasts a year, and it costs more than a bank mortgage. Used as a bridge with a clear way out, it can solve a problem a bank won't. Here are the nine questions to answer before you sign one.
Key takeaways
- Private lenders approve on the property and your equity first; income and credit matter less than at a bank.
- In 2026 a private first mortgage typically runs about 7% to 11% and a private second about 10% to 15%, plus a lender fee.
- Most private mortgages are interest-only with a one- or two-year term, so you need a plan to repay or refinance before maturity.
- Your mortgage position — first, second or third — drives the rate, the fee and how much you can borrow.
What is a private mortgage?
A private mortgage is a mortgage registered on your property by a private lender: an individual investor, a group of investors or a mortgage investment corporation. Because these lenders aren't federally regulated banks, they don't have to apply the federal mortgage stress test or the bank debt-service ratios. They lend against the value and marketability of the property, and price the loan for the risk they take.
People use private mortgages when a bank or B lender can't help in time: self-employed income that's hard to document, bruised credit, a consumer proposal, a purchase that has to close before a sale, tax or property tax arrears, or a large debt consolidation. The Financial Services Regulatory Authority of Ontario puts it plainly: a private mortgage is meant to be a short-term solution. See our private mortgage page for how Lendmax places them.
What is a second mortgage?
A second mortgage is a loan registered on your title behind an existing first mortgage. You keep your first mortgage — and its rate — and borrow additional money against the equity above it. Second mortgages come from private lenders, some B lenders and a few credit unions; most private seconds are interest-only for one year.
Lenders measure a second by combined loan-to-value (CLTV): every registered mortgage added together, divided by the appraised value. Most private second lenders stop near 75% CLTV in strong urban markets and closer to 65% for condos and smaller towns. Read private second mortgages for the details.
Why are private mortgage positions important?
"Position" is the order in which mortgages are paid out if the home is sold under power of sale or foreclosure. The first mortgage is repaid in full first; the second only gets what's left; a third gets what's left after that. (Unpaid property taxes generally rank ahead of all of them.)
| Position | Lender's risk | Typical private rate (2026) | Typical lender fee |
|---|---|---|---|
| First mortgage | Lowest — paid first | About 7% to 11% | 1% to 3% |
| Second mortgage | Higher — paid after the first | About 10% to 15% | 2% to 5% |
| Third mortgage | Highest | Above second-mortgage pricing, when available | Higher still |
Position also decides practical things: whether your first lender must consent (some first mortgages prohibit further charges), how much you can borrow, and what happens if you default on either loan. A default on your first mortgage puts the second at risk too, so second lenders watch the first closely.
Who lends private mortgages?
- Mortgage investment corporations (MICs). Pooled funds set up under section 130.1 of the Income Tax Act, with published lending guidelines and a credit committee. The most institutional of the private options.
- Private lending companies and syndicates. Firms that lend their own or investors' capital, often through a licensed mortgage administrator.
- Individual private lenders. Investors who fund mortgages directly, usually arranged and documented through a licensed mortgage brokerage.
Private lenders are not regulated like banks, but the brokers and brokerages that arrange private mortgages are licensed provincially — by FSRA in Ontario, BCFSA in British Columbia and RECA in Alberta — and must give you written disclosure of the costs before you sign.
How does the payment work on private mortgages?
Most private mortgages are interest-only: each payment covers the interest and nothing else, so the balance at maturity is the balance you borrowed. Fees are normally deducted from the advance rather than paid out of pocket. Some lenders take several months of payments upfront as a prepaid interest reserve.
Worked example: a $450,000 private first mortgage at 8.99%, compounded semi-annually, on a $750,000 home (60% loan-to-value).
| Item | Amount |
|---|---|
| Monthly interest-only payment | $3,309.79 |
| Interest over 12 months | about $39,717 |
| Lender fee (2%) | $9,000 |
| Broker fee, where one applies (1%) | $4,500 |
| Legal and appraisal (estimate) | about $2,100 |
| Net funds after fees | about $434,400 |
| Effective first-year cost | about 12.7% of the net funds |
That last line is the number to compare. Federal law caps the total cost of credit — interest plus fees — at a 35% annual percentage rate for loans to individuals since January 1, 2025, but a well-structured private mortgage should sit far below that.
What's the term of private mortgages?
Usually one year, sometimes six months or two years. A short term protects the lender, and it suits a borrower who needs time to fix a credit file, document income, sell a property or wait out a penalty on an existing mortgage. At maturity you either repay, refinance with a bank or B lender, or renew with the private lender — usually for another fee. See private mortgage renewal.
Many private mortgages are closed for the term or open after an initial period, with a set prepayment charge such as three months' interest. Read that clause before you sign.
What are the criteria to get approved for a private mortgage?
- Equity. Typically up to 75% to 80% loan-to-value on a first, and about 75% combined on a second in strong markets.
- The property. Location, type and how quickly it would sell. Urban detached homes get the best terms; rural acreages, unusual properties and some condos get stricter limits or a "no".
- An appraisal. Ordered by the lender; expect roughly $400 to $800 for a standard urban home.
- Ability to make the payment. Private lenders look at bank statements, rent, business deposits or a prepaid reserve rather than strict debt ratios.
- An exit strategy. How the loan gets repaid at maturity: a sale, a refinance once credit or income is documented, or a lump sum.
- Clean title. Property tax, other liens and any first-mortgage restrictions are checked by the lawyer.
Why are private mortgage rates higher than traditional mortgages?
- Cost of money. Banks fund mortgages with deposits and government-backed securitization. Private lenders use investors' capital, which expects a higher return.
- Risk. Private borrowers, by definition, didn't fit bank rules. Lenders price for the possibility of arrears and enforcement.
- No insurance. Private mortgages can't be insured by CMHC, Sagen or Canada Guaranty, so the lender carries all of the risk.
- Short terms. A one-year loan has to recover its set-up and underwriting costs quickly, which is what the lender fee does.
For comparison, a well-qualified borrower can get a bank mortgage in the low-to-mid 4% range in 2026. That's why a private mortgage is a bridge, not a destination — see how mortgage rates are set.
What are the pros and cons of private mortgages?
| Pros | Cons |
|---|---|
| Approval based on equity, not just income or credit score | Higher rates and upfront fees |
| Fast — often funded within days | Interest-only: the balance doesn't fall |
| Flexible on self-employed income, arrears and unusual situations | Short terms with renewal or refinance risk |
| A second mortgage lets you keep a low-rate first mortgage | Lower maximum loan-to-value than insured bank mortgages |
| No federal stress test | Default can lead quickly to power of sale or foreclosure |
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 lending is legal. The lenders themselves face lighter regulation than banks, but the brokerages and agents who arrange private mortgages are provincially licensed, and federal law caps the total cost of credit at 35% APR for loans to individuals.
Often, yes. Private lenders focus on equity and the property. Credit still affects the rate and how much they'll lend, and they'll want to see how the payment will be made.
Once the appraisal and lawyer are in place, many private mortgages fund within a week, and sometimes in a few days.
Many do. Common terms are closed for the first few months, then open with a charge such as three months' interest. The commitment letter spells it out — read it before you sign.
Find out what a private mortgage would cost you
We'll show the rate, every fee and the effective cost in writing, and map the exit back to a bank before you commit.