What Is a Private Mortgage in Ontario? A Complete Guide for 2026

What Is a Private Mortgage?

A private mortgage is a loan secured against real property that is funded by a private investor, a group of investors, or a Mortgage Investment Corporation (MIC), rather than a bank, credit union, or institutional lender. In Ontario, private mortgages are regulated under the Mortgage Brokerages, Lenders and Administrators Act, 2006 and overseen by the Financial Services Regulatory Authority of Ontario (FSRA).

Private lenders evaluate mortgage applications differently than banks. Where a bank relies heavily on credit scores, provable income, and debt service ratios, a private lender focuses primarily on the equity in the property. This makes private mortgages accessible to borrowers who have been declined by traditional lenders for reasons that may have nothing to do with their ability to repay.

Private mortgages account for a growing share of Ontario's mortgage market. According to FSRA data, private lending grew to approximately 15.8% of Ontario mortgage originations by 2024, driven by tighter bank qualification rules and rising property values creating significant homeowner equity.

How Private Mortgages Work in Ontario

The mechanics of a private mortgage are straightforward, though the details vary by lender and situation.

The Application Process

1. Initial consultation with a licensed mortgage broker who assesses your situation, property, and goals.
2. Property appraisal ordered to establish current market value (typically $300 to $600).
3. Lender matching where your broker presents your file to private lenders whose criteria match your profile.
4. Commitment letter issued by the lender, detailing the rate, term, fees, and conditions.
5. Legal review where both sides retain lawyers to complete the transaction.
6. Funding through your lawyer's trust account, with the mortgage registered on title.

Typical Terms

Private mortgages in Ontario are typically structured as:

• Term length: 6 months to 2 years (most commonly 12 months)
• Payment structure: Interest-only monthly payments
• Loan-to-value (LTV): Up to 75% of appraised value for first mortgages
• Renewal: Available if the borrower is in good standing, though not guaranteed

Unlike conventional mortgages with 25 or 30-year amortizations, private mortgages are designed to be temporary. The expectation is that within one to two terms, the borrower transitions to a B-lender or A-lender mortgage at a lower rate.

Who Qualifies for a Private Mortgage?

The primary qualification criterion is property equity. If you own a property in Ontario with sufficient equity relative to the mortgage amount, private lending may be an option regardless of your credit profile.

Common situations where borrowers turn to private mortgages:

• Bad credit: Credit scores below 550, active collections, judgments, or CRA liens
• Post-insolvency: Recently discharged from bankruptcy or completed a consumer proposal
• Self-employed: Income that is real but difficult to document through conventional channels
• Urgent timeline: Purchase or refinance that needs to close faster than banks can process
• Power of sale: Homeowners who have received a Notice of Sale and need to refinance to stop the process
• Non-standard properties: Rural properties, multi-unit buildings, or mixed-use properties that banks decline

Rates, Fees, and the True Cost of Borrowing

Transparency about costs is essential. Private mortgages are meaningfully more expensive than conventional financing, and understanding the full cost of borrowing is a prerequisite for making an informed decision.

Example: Total Cost of a $200,000 Private Mortgage (12-month term)

In most cases, the lender fee, brokerage fee, and legal costs can be deducted from the mortgage advance rather than paid out of pocket. This is important because it means you receive less than the face amount of the mortgage.

Advantages and Disadvantages

Advantages

• Accessibility: Available to borrowers who cannot qualify with banks due to credit, income, or property issues
• Speed: Can close in 5 to 15 business days versus 15 to 30+ for banks
• Flexibility: Lenders can structure deals creatively to fit unique situations
• Equity-based: Your property's value matters more than your credit score
• Bridge capability: Provides time to resolve the underlying issue preventing conventional financing

Disadvantages

• Higher cost: Rates are 2 to 3 times higher than bank rates, plus additional fees
• Short terms: 6 to 24 months means you face renewal or refinancing pressure regularly
• Renewal risk: The lender is not obligated to renew at term end
• Fee accumulation: If you renew or refinance multiple times, fees compound
• Less regulation: While brokerages are FSRA-regulated, individual private lenders face fewer requirements than banks

When a Private Mortgage Makes Financial Sense

A private mortgage makes financial sense when three conditions are met:

1. You have a clear, time-limited need that conventional lenders cannot serve right now
2. You have sufficient property equity (typically 25%+ equity for a first mortgage)
3. There is a realistic exit strategy to transition to lower-cost financing within 12 to 24 months

Common scenarios where the math works:

• Debt consolidation: Paying off $60,000 in credit card debt at 24% by adding it to a mortgage at 10% can reduce monthly obligations by over $1,000, even at the higher private rate
• Power of sale rescue: Losing your home and the equity in it is far more expensive than paying private mortgage rates for 12 months
• Bridge financing: A short-term private mortgage to close a purchase while your current home sells can prevent losing your deposit
• Self-employed purchase: If you have strong cash flow but two years of low declared income, a private mortgage lets you buy now and refinance once you have the tax documentation

A private mortgage should always have an end date in mind. It is a bridge, not a destination. If your broker cannot explain how you will exit the private mortgage within one to two terms, ask harder questions.

The Exit Strategy: Moving to Conventional Financing

Every responsible private mortgage arrangement should include a conversation about the exit strategy. This is the plan for transitioning from private financing to a B-lender or A-lender mortgage at a lower rate.

Common exit strategies include:

• Credit rebuilding: Making all payments on time for 12 to 24 months while paying down other debts to improve your credit score
• Income documentation: Filing two years of higher-income tax returns to qualify for bank or B-lender financing
• Property sale: Selling the property to pay out the mortgage and move on
• Equity growth: If the property appreciates, the improved LTV ratio may open doors with conventional lenders

At Good Home Capital, we discuss the exit strategy during the initial consultation, before any commitment is made. We believe that if there is no realistic path out of private financing, the honest advice may be that a private mortgage is not the right solution.