When traditional banks say no, many Ontario homeowners and buyers turn to an alternative path—private mortgages. But are these loans a smart solution or a risky fallback? In today’s challenging housing market, private mortgages have emerged as both a lifeline for borrowers in tough situations and a viable financing tool for those who don’t meet strict bank criteria.
In this blog, we’ll explore what private mortgages are, when they make sense, who offers them, and how to weigh the risks versus rewards. If you’re an Ontario resident facing mortgage hurdles, this guide will help you make an informed decision.
What Is a Private Mortgage?
A private mortgage is a home loan provided by individual lenders or mortgage investment corporations (MICs) instead of traditional financial institutions like banks or credit unions. These lenders focus less on your credit score and more on the value of your property, making it easier to qualify if you don’t meet the conventional requirements.
Key features of private mortgages in Ontario:
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Short-term (typically 1–3 years)
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Higher interest rates (often 7%–14% or more)
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Interest-only or interest-plus-fee structures
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Quick approvals, often within days
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Flexible terms
Why Do Ontario Borrowers Turn to Private Mortgages?
Private mortgages serve a crucial role for borrowers who:
1. Have Poor or Damaged Credit
Traditional lenders usually reject applicants with credit scores below 600. Private lenders often approve borrowers with bruised credit, focusing on the property itself.
2. Are Self-Employed or Have Non-Traditional Income
Business owners, gig workers, or commission-based employees may struggle to prove consistent income, even if they can afford the payments. Private lenders offer more flexibility.
3. Need Fast Access to Funds
Private mortgage approvals are much faster than banks—often finalized in under a week. This speed can be vital in real estate bidding wars, emergency debt repayment, or stopping foreclosure.
4. Are Facing Foreclosure or Power of Sale
Private lenders often step in to refinance homeowners at risk of losing their property, buying time to stabilize finances and avoid legal action.
5. Have High Debt-to-Income Ratios
Private lenders are less concerned with your total debt ratios and more focused on loan-to-value (LTV)—the amount borrowed compared to the value of your home.
When Is a Private Mortgage the Right Choice?
While private mortgages aren’t for everyone, they can be a strategic tool in the following situations:
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Bridge Financing: When you’ve purchased a new home but haven’t sold your current one yet.
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Construction Loans: For building or renovating properties where banks won’t finance due to project complexity.
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Debt Consolidation: When consolidating high-interest debt into your home equity to reduce monthly payments.
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Buying Time: If you need to rebuild your credit or income situation before qualifying for a traditional lender.
Used properly, private mortgages offer a temporary solution with long-term benefits.
What Are the Risks of a Private Mortgage?
Despite their benefits, private mortgages come with several drawbacks you need to understand:
1. Higher Interest Rates
Compared to bank mortgages (which may offer rates below 6%), private mortgage rates can be double or more. This increases your monthly interest costs significantly.
2. Short Terms
Private mortgages typically come with 12-month terms. At the end of the term, you’ll need to renew, refinance, or repay the loan, potentially at a higher rate or with additional fees.
3. Lender Fees
Expect lender and broker fees ranging from 1% to 3% of the mortgage amount, due up front. These fees can make private loans costlier than they first appear.
4. Risk of Default
Because payments may be interest-only, it’s easy to fall behind without reducing your principal. If property values drop or your exit strategy fails, you could face power of sale or foreclosure.
Private Mortgage Example in Ontario
Let’s say you live in Hamilton, Ontario and have a home worth $700,000 with an existing mortgage of $400,000. You’re self-employed and have $50,000 in high-interest credit card debt but were just denied a refinance by your bank due to credit score and inconsistent income.
A private lender may offer:
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A second mortgage of $100,000
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Interest rate: 11%
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Term: 1 year
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Monthly payment: interest-only
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Fees: 2% lender fee + 1% broker fee
You use the $100,000 to pay off your credit cards and cover lender fees. Over the next year, you work with a mortgage broker to rebuild your credit and income documentation, preparing to refinance with a B-lender or credit union at a lower rate.
This short-term solution buys you time while improving your long-term financial position.
How to Find a Reputable Private Mortgage Lender in Ontario
There are thousands of private lenders, but not all are equal. Working with a licensed mortgage broker is your best safeguard.
Here’s what to look for:
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Licensed with FSRA (Financial Services Regulatory Authority of Ontario)
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Clear, written disclosures of all fees, rates, and terms
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Experience with private lending, especially for your specific situation
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Transparent exit strategy planning
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Strong reputation and positive client reviews
Avoid unregulated or predatory lenders who prey on desperate borrowers with hidden fees and unfair terms.
Tips for Ontario Homeowners Considering a Private Mortgage
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Have an Exit Strategy: Know how you’ll repay or refinance the loan before the term ends.
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Understand the Costs: Don’t just focus on the rate—factor in fees and payment structure.
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Use a Mortgage Broker: They have access to multiple lenders and can negotiate better terms.
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Plan for Renewal: Start preparing your finances early in case you need to renew.
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Avoid Overleveraging: Only borrow what you need. Taking out too much equity can backfire if home values fall.
Conclusion: Lifeline or Last Resort?
For many Ontario homeowners, private mortgages are a financial lifeline—especially in today’s strict lending environment. While they come at a cost, they also provide flexibility, speed, and access to capital when other lenders close the door.
Used strategically, with a solid plan and the right broker, a private mortgage can be the first step back to financial stability. But without proper guidance and foresight, it can quickly become a costly mistake.
Before signing any agreement, always consult a licensed mortgage professional who can guide you through the risks and rewards—and help you decide whether a private mortgage is truly your best option.
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