A private mortgage is a home loan provided by a lender that is not a traditional bank or credit union. In Canada, private mortgages are commonly funded by individuals, mortgage investment corporations (MICs), or private lending companies.
Like any other mortgage, a private mortgage is registered against your property. The main difference is how the lender decides whether to approve your application.
Banks rely heavily on credit scores, income documents, and strict lending rules. Private lenders focus primarily on the value of your property and how much equity you have available.
How Private Mortgages Work in Canada
Private mortgages follow Canadian mortgage laws and are legally registered on your property. The process is usually simpler and faster than bank financing.
Most private mortgages work like this:
- The lender reviews your property value
- Existing mortgages or liens are considered
- The loan is approved based on equity and risk
- Funds are released after legal registration
Because underwriting is more flexible, approval can often happen in days rather than weeks.
What Do Private Lenders Look At?
Private lenders care less about paperwork and more about risk protection.
They usually focus on:
- Property market value
- Loan-to-value (LTV) ratio
- Location and property type
- Exit strategy
Income verification and credit scores may still be reviewed, but they are not the primary decision factors.
Understanding Loan-to-Value (LTV)
Loan-to-value, or LTV, compares your mortgage amount to your property’s value.
Example:If your home is worth $700,000 and total mortgages equal $490,000, your LTV is 70%.
Lower LTVs reduce risk for the lender and often lead to easier approval. Most private lenders prefer conservative LTVs, especially for short-term loans.
Typical Private Mortgage Terms
Private mortgages in Canada are usually:
- Short-term (6 to 24 months)
- Interest-only payments in many cases
- First or second mortgages
They are designed as temporary solutions, not long-term financing.
Why Homeowners Use Private Mortgages
Private mortgages are commonly used when traditional lenders cannot help right away.
Bank Declines
Homeowners may be declined due to recent credit issues, high debt ratios, or non-traditional income.
Self-Employed Income
Self-employed borrowers often struggle with bank income verification despite strong earnings.
Urgent Financial Needs
Private mortgages are often used to prevent foreclosure, pay tax arrears, or resolve legal issues quickly.
Short-Term Transitions
They can help bridge financing gaps while preparing for refinancing or selling a property.
Interest Rates and Fees Explained
Private mortgages usually cost more than bank mortgages because the risk is higher.
Costs may include:
- Higher interest rates
- Lender fees
- Brokerage fees
- Legal and appraisal fees
Understanding the full cost before committing is essential.
What Is an Exit Strategy?
An exit strategy explains how the private mortgage will be paid off at the end of the term.
Common exit strategies include:
- Refinancing with a bank or B-lender
- Selling the property
- Improving credit or income qualification
Private lenders often require a clear and realistic exit plan before approving a loan.
Risks to Be Aware Of
Private mortgages can be helpful, but they are not risk-free.
Potential risks include:
- Renewal pressure if the term ends
- Higher overall borrowing costs
- Fees increasing the total loan amount
Careful planning and professional guidance can help reduce these risks.
When a Private Mortgage May Make Sense
A private mortgage may be appropriate if:
- You have strong home equity
- The need is short-term
- You understand the costs involved
- You have a clear exit plan
They are usually not ideal as permanent financing.
Final Thoughts
Private mortgages play an important role in Canada’s housing market. For many homeowners, they provide flexibility and access to funds when banks cannot help.
Used carefully and with a clear plan, a private mortgage can be a practical short-term solution during financial transitions.
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