Private mortgage lending in Canada: how it works and what it really costs

A private mortgage is a mortgage funded by an investor rather than a bank. The lender might be a mortgage investment corporation, a pooled mortgage fund, or an individual with capital to place. What they all have in common is that they underwrite the property first and the borrower second. Equity, location, marketability and a credible repayment plan matter more than your credit score or your debt service ratios.

That difference is the whole product. It is also the reason private money costs what it does. In August 2026 a private first mortgage typically runs about 7% to 11% interest-only with a lender fee of 1% to 3%, and a private second about 10% to 15% with a fee of 2% to 5%. Add a broker fee, legal costs and an appraisal, deduct all of it from the advance, and the effective cost of the first year is regularly four to eight percentage points above the quoted rate.

This page is the honest version. What a private mortgage is, who is actually behind the money, how the fees work, what happens at maturity if your exit is not ready, and the twelve-month plan that gets you back to a B or A lender. It also says plainly when a private mortgage is the wrong answer, because a good chunk of the files that arrive here should never go private at all.

When borrowers end up looking at private mortgage lenders

Almost nobody chooses private lending in the abstract. People arrive after something specific has happened, and it is usually one of these six.

What is a private mortgage, in plain terms?

A private mortgage is a loan secured against real estate and funded by a private investor rather than a federally regulated bank. It is registered on your title exactly the way a bank mortgage is, in first, second or third position, and it carries all the same legal consequences if you default. The difference sits entirely in who decides and what they look at.

A bank starts with you. It scores your credit, calculates your gross and total debt service ratios, applies the stress test at the greater of your contract rate plus 2% or 5.25%, and only then thinks about the house. A private lender starts with the house. What is it worth, how quickly could it be sold, how much equity sits underneath the loan, and is there a believable way this gets repaid in twelve months.

That inversion is why private mortgages are sometimes called equity lending or asset-based lending. It is not a loophole, and it is not unregulated. Private mortgage lending is legal across Canada, arranged through provincially licensed brokerages, and governed by disclosure rules written specifically for it.

• Registered on title in first, second or third position, like any mortgage
• Terms are short: six to twenty-four months, with twelve months by far the most common
• Payments are almost always interest-only, so the balance does not fall over the term
• Underwriting weighs equity, property type, location and exit far more than credit score
• Funding is fast: often seven to fourteen business days on a first, two to seven days on a second

Who are private mortgage lenders? MICs, funds and individual investors

There is no single kind of private lender, and the differences matter to you. Pricing, flexibility, speed and how forgiving a lender is at maturity all vary by lender type, so when we present offers we tell you which category the money is coming from.

A mortgage investment corporation, usually called a MIC, is a pooled fund structured under section 130.1 of the Income Tax Act. It raises money from many investors, lends it across a portfolio of mortgages, and distributes essentially all its income as dividends. MICs are the most institutional of the private options: published rate cards, a credit committee and consistent renewal policy. Mortgage investment entities held roughly 1.3% of outstanding Canadian mortgages as of the third quarter of 2025.

Individual investors are exactly that: a person, often a retired professional or another business owner, lending their own capital through a brokerage. They can be faster and more flexible on an unusual property, and they can also be less predictable, because if an individual wants their capital back at maturity there is no committee to appeal to. Syndicated mortgages, where several investors fund one loan, add another layer of coordination at renewal.

Private lender types and what changes for the borrower

Where your brokerage sits in this

You do not usually deal with a private lender directly. Most do not take applications from the public at all, because sourcing, packaging and disclosure are exactly the work they pay a brokerage to do. A licensed brokerage assembles the file, runs it past lenders whose mandate fits the property and the position, and presents the offers with the disclosure the law requires.

How private lenders underwrite on equity instead of income

Private underwriting answers three questions in order. What is the property worth today in a normal sale. How much total debt will sit against it after this loan. And how does the lender get repaid at the end of the term.

Value is set by an appraisal from a lender-approved appraiser, not by an online estimate. On a first mortgage an appraisal is essentially always ordered; on a second, some lenders accept an automated valuation for a low-loan-to-value file in a major market. Expect $400 to $800 for a standard urban single-family appraisal and materially more for acreage or unusual property.

Total debt is expressed as loan-to-value on a first, or combined loan-to-value across every registered charge on a second or third. Private first mortgages typically reach about 75% to 80% of appraised value. Private seconds are generally capped around 75% combined in strong urban markets, and often 65% for condominiums and smaller centres. Lenders quoting 80% or 85% combined exist, but they are few, they price at the very top of the range, and they will not touch a property that is slow to sell.

Income is not ignored, despite what a lot of advertising implies. A private lender still wants to see the interest-only payment can be made every month, from bank statements, deposit history, rent rolls, or a prepaid interest reserve carved out of the advance. What they will not do is apply the stress test or refuse the file because a T4 does not exist.

• Appraised value from a lender-approved appraiser, not an online estimate
• Loan-to-value or combined loan-to-value calculated across all registered charges
• Property type, location and days-on-market in your area, because that is their exit
• Demonstrated ability to make the monthly interest payment, from any credible source
• A written, dated exit plan the lender finds believable

What does a private mortgage actually cost? Rate plus fees, and the effective number

The quoted rate is roughly half the story. Private mortgages carry a lender fee, and on almost every file a broker fee as well, and both come off the top of the advance. You pay interest on the full loan amount while receiving the loan amount minus every fee. That gap is what turns a 10.49% mortgage into a mid-teens effective cost.

Here is the anatomy of a typical private deal. The lender fee is 1% to 3% of the loan on a first and 2% to 5% on a second, paid to the investor for placing the capital. The broker fee is usually 1% to 2%, paid to the brokerage for sourcing, packaging and disclosure. Combined fees on a reasonable file should generally stay at or under 5%, and most private lenders apply a minimum fee, commonly around $3,500, so small loans are proportionally more expensive. Legal costs run $1,500 to $3,000 for your own lawyer and often the lender's counsel as well. The appraisal is $400 to $800 on a standard property. Some deals also carry a renewal fee of 1% to 2% if you extend, and a discharge fee of $300 to $600 when the mortgage is paid out.

The table below shows why the length of the term changes the effective number so much. It is the same $150,000 private mortgage at 10.49% interest-only, with a 3% lender fee, a 1.5% broker fee and $2,500 of legal costs, held for different lengths of time. The fees are the same in every row. Only the interest changes.

Same $150,000 private mortgage at 10.49%, different holding periods. Fees $9,250, net advance $140,750.

Interest-only payments, interest reserves and what happens at maturity

Almost every private mortgage is interest-only. Canadian mortgages compound semi-annually, so the monthly payment is the balance multiplied by ((1 + annual rate ÷ 2) raised to the power of 2 ÷ 12) − 1. On $150,000 at 10.49% that is $1,283.51 a month, and $150,000 still owing twelve months later. Some lenders instead take a prepaid interest reserve, holding back three, six or twelve months of payments from the advance and paying themselves from the holdback. It protects your payment record and it reduces your net cash by one payment per month reserved, so size the loan accordingly.

Two terms decide your flexibility. Open or closed: fully open lets you repay the day your exit approves, closed for three or six months then open is the common middle ground, and fully closed for a year means an early payout still owes the remaining interest. Standard or collateral charge: a standard charge is registered for the loan amount and is simple to discharge or register behind, while a collateral charge is registered for more, often 100% or 125% of value, and can block secondary financing entirely.

At maturity the balance is due in full. There is no automatic renewal, no grace period in the standard commitment, and no obligation on the investor to offer you anything. Four things can happen: the lender renews for a fee of 1% to 2%, you refinance into a B or A lender, you sell, or the lender enforces. Enforcement means power of sale in Ontario, and a court-supervised foreclosure in British Columbia and Alberta, with the lender's legal costs added to your balance.

Renewal is usually available to a borrower who has paid on time and whose property has held its value, but it is a decision rather than a right, and it is not free. A 1.5% renewal fee on $150,000 is $2,250 in cash on top of another year of interest. The defence is calendar discipline: start the exit refinance at month eight or nine, because an institutional refinance takes three to five weeks when the file is clean and longer when a payout statement, an appraisal and two lawyers have to line up.

• Interest-only payment = balance × ((1 + annual rate ÷ 2) ^ (2 ÷ 12) − 1)
• The balance at maturity equals the balance at funding unless you make lump sums
• A prepaid interest reserve reduces your cash advance by one payment per month reserved
• Confirm in writing whether the mortgage is open, partially open or fully closed
• Confirm the renewal fee and the discharge fee, usually $300 to $600, before you sign

Is private lending regulated in Canada? Licensing and your disclosure statement

Yes. Private mortgage lending is legal in every province and is arranged through mortgage brokerages licensed provincially, not federally. In Ontario the regulator is the Financial Services Regulatory Authority of Ontario, in British Columbia the BC Financial Services Authority, and in Alberta the Real Estate Council of Alberta. Each licenses the brokerage and its brokers and agents, sets conduct standards, and handles complaints.

Your most useful protection is the mandatory disclosure statement. Before you commit to a brokered private mortgage you are entitled to a written disclosure setting out the material terms, every fee the brokerage will receive from you and from the lender, the identity and calculation basis of third-party fees, and any incentive attached to placing the deal. In Ontario it must reach you at the earliest opportunity and no later than two business days before you are asked to commit, and remuneration must flow through the brokerage rather than to an individual agent.

Two checks take five minutes and are worth doing every time. Verify the brokerage's licence number on the regulator's public register. And read the disclosure line by line before you sign, particularly the fees, the term, whether the mortgage is open or closed, and the renewal terms. If a number on the commitment does not match what you were told verbally, the commitment is what governs.

• Confirm the brokerage licence number on your provincial regulator's public register
• Insist on the written disclosure statement before you commit, not at the lawyer's office
• Check that every fee you were quoted verbally appears in the same amount in writing
• Confirm the term, the maturity date, and whether the mortgage is open or closed
• Confirm the renewal fee and the discharge fee before you sign, not at payout
• Never pay a fee up front to secure an approval. Fees come out of the advance at closing

When a private mortgage is the wrong answer

A meaningful share of the files that come to us asking for private money should not go private. Saying so costs us a deal and saves the borrower thousands, and it is the most useful thing on this page.

If you were declined on debt service ratios rather than on credit or income documentation, test a B lender first. B-lender fixed rates on the July 2026 Ontario rate cards ran roughly 4.69% to 7.00% depending on lender and term, with a lender fee of about 1%, against a best A three-year fixed of 3.94%. A private second at 11.99% with 4.5% in fees is a completely different order of expense. If you qualify for a home equity line of credit, take the line of credit: about 4.95% at prime plus half a point today, no lender fee, to 65% loan-to-value on the revolving portion.

And if the underlying problem is that your income no longer supports the house, a private mortgage does not fix it. It adds a payment. Borrowing at 12% to keep making payments you already cannot make converts equity into interest and delays the decision by a year. In that situation the honest options are a consumer proposal, a sale on your own terms while you still control the timing, or a downsize. We will say so.

Cheaper routes to test before a private mortgage, August 2026

The exit plan: getting out of a private mortgage in twelve months

The exit plan is the product. A private mortgage without one is not financing, it is a slow way to sell your house. Before we place a file we write down four things: which lender class you are going to, at what approximate rate, at what loan-to-value, and by what date. Then we write down what has to be true about you by that date.

For most borrowers the destination is a B lender at roughly 5.2% to 6.5% with a 1% fee, twelve to eighteen months out, and then an A lender at renewal after that. The work in between is unglamorous. Not one payment late on any account, because a single thirty-day late resets the clock at most B lenders. Revolving balances brought under 30% of each limit with the accounts left open rather than closed. Two years of filed T1 Generals and Notices of Assessment if you are self-employed, and a CRA balance at zero.

Some exits are about the property rather than the borrower. Finish the renovation and get a fresh appraisal. Certify the well and septic. Get the tenant onto a written lease so the rent counts. In those files the exit date is set by the work, not the calendar, so size the term to the work with a buffer.

Then diarise it. Month eight, pull your own credit reports and fix errors, which take thirty to sixty days to correct. Month nine, apply. Month ten, appraisal ordered and lawyer instructed. Month eleven, funded and the private mortgage discharged. If you reach month ten unready, you still have room to negotiate a sensible renewal instead of accepting whatever is offered in the final fortnight.

• A written target before funding: lender class, rate, loan-to-value and date
• Zero late payments on every account for the whole term, without exception
• Revolving utilisation under 30% per card, accounts kept open
• Two years of filed returns and a clean CRA balance if self-employed
• Any property work that unlocks institutional financing finished by month eight
• A calendar reminder at month eight, not a wait for the maturity letter

How Lendmax places a private mortgage across 30+ lenders

Private mortgage pricing for the same file varies more between lenders than almost anything else in Canadian mortgage lending. Two MICs will look at the same $600,000 house and the same borrower and come back three quarters of a point and a full point of lender fee apart, because their mandates, their concentration limits and their appetite for that postal code are different.

So the work is comparison, and it has to be comparison on the number that matters. We rebuild every offer as an effective annualized cost on the cash actually advanced, and we write the exit before we place the deal rather than after.

1. We test the cheaper lenders before we test the private ones — Automated credit and ratio analysis tells us within a day whether an A refinance, a B refinance, a HELOC or an institutional second clears. A surprising number of files that arrive convinced they are private are not. If one of those clears, we place it there and tell you why private money was unnecessary.
2. AVM value first, appraisal second — An automated valuation model gives us an early read on value so we can pitch the request into the lowest loan-to-value band that solves the problem. Coming in at 68% instead of 76% can move the rate a full point and the lender fee half a point, before anyone has paid for an appraisal.
3. Every offer restated as an effective cost on net cash — Interest, plus lender fee, plus broker fee, plus legal, plus appraisal, divided by the money that actually reaches you. Offers that look cheapest on the quoted rate frequently are not, particularly on smaller loans where the minimum fee dominates. This is where the comparison is genuinely won.
4. The exit written down before funding, then diarised — Target lender class, target rate, target loan-to-value, target date, and the specific list of what has to be true about your credit, your filings or your property by then. We set the reminder at month eight and we start the exit refinance then, not at maturity.

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