Private Mortgages in Ontario: Costs, Risks and Exit Planning

A private mortgage is funded by an individual lender, a group of investors or a mortgage investment corporation rather than a bank. It is generally a shorter-term arrangement priced on the property and the equity more than on income or credit. It costs more than prime lending, and it should only be entered into with a clear plan for what replaces it.

Who uses private financing

• Self-employed homeowners whose income is difficult to document conventionally
• Homeowners rebuilding credit, including after a consumer proposal
• Homeowners with arrears — mortgage, property tax or CRA
• Owners of properties that mainstream lenders treat as harder to finance
• Homeowners who need a short bridge while a longer-term solution is arranged

Private first vs. private second

A private first mortgage replaces your existing first mortgage and sits in first position. A private second registers behind an existing first mortgage and leaves it in place. Second position carries more risk for the lender, so it generally costs more — but it lets you keep a first mortgage that may be worth keeping.

MIC vs. individual lender

A mortgage investment corporation pools investor capital and lends under a defined set of guidelines, so its criteria tend to be more consistent and its process more predictable. An individual private lender may have more flexibility on an unusual file, but terms, availability and appetite can vary considerably from one lender to the next.

How private lenders assess a file

• The property first: value, type, location, condition and how readily it would sell
• Equity position and combined loan-to-value
• Standing of any mortgage ahead of theirs
• Whether property taxes and insurance are current
• Your ability to make the payments
• The exit strategy — what repays or replaces this mortgage, and by when

Rates, fees and total cost

Private mortgages generally carry higher interest rates than prime lending, plus a lender fee and, where applicable, a brokerage fee. Legal costs, appraisal, registration and discharge costs apply. Some arrangements include an interest reserve, where a portion of the advance is set aside to cover payments — which reduces the net funds you actually receive.

Always ask for the total dollar cost over the expected term and the net amount you will actually receive after all fees. Those two numbers tell you far more than the rate alone.

Renewal and why the exit plan matters

Private terms are typically short, often a year. Renewal is not guaranteed. A lender may decline to renew, or may renew on different terms with another fee. This is precisely why an exit strategy should be agreed before funding rather than improvised at maturity.

A realistic exit might involve improving credit over the term, filing outstanding tax returns, establishing documentable self-employed income, paying down CRA or unsecured debt, completing renovations and reappraising, selling another property, or waiting for the first mortgage to renew. What matters is that the plan is specific, has a date attached, and is reviewed roughly six months before maturity rather than in the final weeks.

Moving from private back to mainstream lending

The usual progression is private to a B lender, then B lender to an A lender. Each step generally requires something to have improved — documented income, repaired credit, reduced debt, or a stronger appraised value. It rarely happens automatically, and it is worth mapping out the specific milestones at the outset.

When private financing may not be suitable

If the payments would not be comfortably affordable, if there is no realistic exit, if the amount needed is small relative to the fees involved, or if a mainstream or B-lender option would likely be available with a little preparation, private financing may be the wrong tool. In some situations the better advice is to wait, to restructure differently, or to obtain independent legal or insolvency advice first.

Risks you should understand

• Private financing generally costs more than prime lending, and fees apply in addition to interest.
• The mortgage is secured against your home; missed payments can have serious consequences.
• Terms are typically short and renewal is not guaranteed.
• Repeated renewals can erode equity through accumulated fees.
• Final approval depends on the complete application and the lender’s review.

Written and reviewed by Rajiv Verma, Mortgage Broker, Licence #M13000402, Mortgage Architects (FSRA Brokerage Licence #12728). Rajiv works with Ontario homeowners on second mortgages, private financing, refinancing and debt consolidation.
Last reviewed: 21 July 2026.

This page is general education about mortgage options in Ontario. It is not legal, accounting, tax or insolvency advice, and it is not an offer of credit. Please seek independent professional advice for your own situation.

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