A private mortgage in Ontario is a legitimate, regulated financing tool — mortgage brokering is overseen by FSRA, and private lenders are widely used. It is not inherently unsafe. The real risks are cost, short terms, and no exit plan, not legality. A private mortgage becomes dangerous when it is entered into without understanding what it costs and what replaces it.
~1% vs ~0.15%
Private-lender mortgage delinquency in Canada has been reported at roughly 1%, against about 0.15% industry-wide (2023). Higher than the banks, but still low in absolute terms — useful, honest context for judging the real risk.
Source: reported from CMHC data (2023). Figure to be confirmed against the current CMHC report.
Where the fear comes from
“Private lender” sounds informal, and some homeowners picture something closer to a loan shark than a bank. The reality is more ordinary. Private mortgage funds come from mortgage investment corporations, groups of investors, and individuals lending through licensed brokers. The arrangement is registered on title, prepared by lawyers, and governed by a written commitment — the same legal machinery as any mortgage.
What is actually regulated
- The broker arranging it must be licensed by FSRA, Ontario’s financial services regulator.
- The terms must be properly disclosed to you in writing before you commit.
- Federal criminal interest provisions set an outer legal limit on the effective annual rate.
- The mortgage itself is registered and enforced through the same legal system as a bank mortgage — including the protections you have under Ontario’s Mortgages Act.
What is not regulated the way bank posted rates are is the price. Private rates are set by the lender based on risk, which is why comparing offers and understanding the total cost matters.
The real risks — and how to manage each
| Real risk | How to manage it |
|---|---|
| It costs more than prime lending | Compare total dollar cost, not rate. Make sure the reason for borrowing justifies it. |
| Terms are short and renewal isn’t guaranteed | Have a dated exit plan agreed before funding, not at maturity. |
| Fees can be significant | Get every fee itemised in writing. Ask for the net advance after deductions. |
| Some individual lenders are inflexible at maturity | Ask whether the lender typically renews, and what happens if your exit slips. |
| It’s secured against your home | Only borrow what the payments genuinely support. |
None of these is about the arrangement being illegitimate. They are about it being a short-term tool used properly.
How to tell a good arrangement from a bad one
- Everything is in writing and clearly disclosed. Rate, every fee, term, renewal terms, prepayment terms. If something can’t be explained, that’s the warning sign.
- A licensed broker is involved. Check the FSRA register.
- There is a real exit plan. A good arrangement is built to be replaced — by a refinance, a B lender, a sale. If nobody can tell you how it ends, be cautious.
- The payments are genuinely affordable. A private mortgage that you can’t service just moves a problem forward.
- You’re told when it’s the wrong option. Anyone unwilling to describe a situation where you shouldn’t do this is selling, not advising.
When a private mortgage is not the right tool
If the payments aren’t comfortably affordable, if there’s no realistic exit, if the amount needed is small relative to the fees, or if a mainstream or B-lender option would likely be available with a little preparation — private financing may be the wrong answer. In some situations the better step is to wait, restructure differently, or get independent insolvency advice first.
Frequently asked questions
Are private mortgage lenders legal in Ontario?
Yes. They are a regulated part of the mortgage market. The broker arranging the mortgage must be FSRA-licensed, and the terms must be disclosed to you in writing.
Can a private lender take my house easily?
A private lender enforces through the same legal process as any mortgage lender, including the Notice of Sale and redemption period under Ontario’s Mortgages Act. They cannot simply take the property — the same protections apply.
How do I check a lender or broker is legitimate?
Confirm the broker’s licence on the FSRA register, insist on written disclosure of all terms before committing, and have your own lawyer review the commitment. A legitimate arrangement welcomes all three.
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• Canada Mortgage and Housing Corporation (CMHC) — mortgage market and delinquency data: cmhc-schl.gc.ca
• Ontario Mortgages Act — borrower protections and the enforcement process
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.