A private mortgage is a short-term tool, not a destination. It’s equity-based, it costs more than a bank, and it’s only the right call when there’s a clear way out. Used properly, it can save a deal or a home. Used as a place to live long-term, it’s the most expensive mortgage you’ll ever carry. Here’s how to tell which situation you’re in — before you sign.
The short answer
- Private lending is equity-based, not income-based.
- It’s short-term — typically about a year — and it’s expensive.
- It’s a bridge to somewhere. If nobody has explained where, walk away.
What a private lender actually is
Not a bank. A private lender is an individual, a group of investors, or a mortgage investment corporation (MIC) lending their own capital against real property. They aren’t federally regulated the way a bank is — which is precisely why they can do things banks can’t, and why the protections are different.
The consequence that matters: they aren’t bound by the federal stress test. They’re lending against your property, not your paycheque. That’s why a file a bank’s system auto-declines can fund privately in days. If that’s your situation, our private mortgages guide walks through how lenders assess a file — and when private isn’t the right answer.
What they actually care about
In rough order:
- Equity. The single biggest factor — how much of the home do you genuinely own? Private lenders lend to a loan-to-value ceiling, and in a market like Brampton or the wider GTA they’re asking what the property realistically sells for if things go wrong.
- The property itself. A standard house in a liquid GTA neighbourhood is straightforward. Something unusual, rural or hard to sell is not.
- The exit. How does this loan end? This is the whole deal.
- Income — somewhat. They want to see you can service the payments, but it’s nothing like an A-lender’s documentation exercise.
Credit score matters far less than you’d expect. Equity plus a credible exit beats a bruised score most of the time. (New to the terms? See the mortgage glossary.)
What it costs — honestly
More than a bank. Considerably. Pricing is set per deal — by your equity position, the property, the term and the risk — so any article quoting you a specific private rate is guessing. What you should expect structurally:
- A higher interest rate than any A- or B-lender will offer.
- A lender fee, and usually a brokerage fee — often deducted from the advance rather than paid up front.
- Legal costs, typically yours.
- Often interest-only payments — which keeps the monthly cost down but means you’re not reducing principal.
Every one of those must be disclosed to you in writing before you commit. Ours always is. If a number appears at the lawyer’s office that nobody mentioned, that isn’t a fee — it’s a warning. See exactly how the costs work in rates, fees & costs.
When it’s genuinely the right call
- The clock. You have a firm closing and financing fell through. Private money funds in days.
- The file needs time. Bruised credit, a recent consumer proposal, or self-employed income that needs another year of returns. Private carries you about 12 months while the fix happens.
- Equity-rich, income-poor. Substantial equity, income that doesn’t fit a bank’s template.
- Property or tax pressure. Arrears where the alternative is losing the home — if you’re facing a deadline, read how to stop a power of sale.
- Bridging a sale — though a conventional bridge financing product is usually cheaper if you qualify.
The one question: what’s the exit?
A private mortgage is a bridge, and bridges go somewhere. Before you sign, you should be able to say in one sentence how this ends — usually one of:
- Refinance to a B-lender in about 12 months once credit has recovered.
- Refinance to an A-lender once two years of self-employed returns exist.
- Sell the property.
- Pay it out from a known, dated source.
If nobody has walked you through the exit, you’re not being sold a bridge — you’re being sold a renewal. That’s the tell. A private lender who’s comfortable with you refinancing away in a year is behaving properly; one whose plan is for you to stay is making money from your problem. Ask directly: “What has to be true in 12 months for me to leave this loan?” A good answer is specific. A vague one is your signal. This is exactly what an exit strategy is for.
How to protect yourself
- Get every cost in writing, in advance — rate, lender fee, broker fee, legal, renewal terms, prepayment.
- Use your own lawyer. Independent legal advice isn’t a formality here.
- Understand first vs. second position. A second mortgage sits behind your existing one and is priced accordingly.
- Know the renewal terms before you need them. What happens at month 12 if you’re not ready?
- Check the brokerage is licensed. Ours is Mortgage Architects, FSRA Brokerage Licence #12728 — verifiable on the public register.
- Be suspicious of urgency that isn’t yours. Your deal may be urgent; that’s not a reason to skip reading.
The bottom line
A private mortgage is a tool with a specific job: buy time, at a price, with a way out. Used for that, it saves deals and homes. Used as a destination, it’s the most expensive mortgage you’ll ever carry. I place private and second-mortgage files across Brampton and the GTA — and I’ll tell you when the honest answer is “wait six months and fix this instead.” Compare it against your other choices in compare your options, or start with your own numbers.
Frequently asked questions
Are private mortgage lenders safe?
Reputable ones are. They’re arranged through a licensed brokerage, they’re equity-based, and every cost is disclosed in writing before you commit. The real risk is undisclosed fees and no exit plan — so use your own lawyer and confirm the brokerage’s FSRA licence.
How much can you borrow from a private lender in Ontario?
Private lending is equity-based, so it comes down to your loan-to-value — how much of the home you genuinely own. Limits and rates are set per deal by your equity, the property and the exit, not by a rate table.
How long is a private mortgage?
Usually about a year — it’s a bridge, not a destination. Before signing, you should be able to say in one sentence how it ends: refinance to a B- or A-lender, or sell.
Written and reviewed by Rajiv Verma, Mortgage Broker · Mortgage Architects, FSRA Brokerage Licence #12728. Private mortgage rates, fees, LTV limits and terms are set per deal and vary widely by lender, property and borrower — no rate or fee is quoted here because none would be accurate for your file. Private lenders are generally not federally regulated and are not bound by the federal stress test. All costs must be disclosed in writing before you commit, and independent legal advice is strongly recommended. General information about mortgage options in Ontario, not advice for your specific situation, and not an offer of credit.
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