What Is Hard Money Mortgage Lending?
Hard money mortgage lending in Canada refers to short-term, equity-based loans used when traditional financing isn’t available. These loans are secured by real estate and rely on the value of the property rather than the borrower’s credit history. Canadian homeowners often turn to alternative lenders during financial emergencies, like mortgage arrears, tax issues, or to avoid foreclosure. Hard money is fast, flexible, and often more expensive than conventional mortgages. If you need immediate funding and have equity in your home, this option may be worth considering.
How Hard Money Mortgage Lending Works
Asset-Based Lending Principles
Hard money lending is asset-based. Instead of relying on a borrower’s income, employment, or credit score, lenders evaluate the loan-to-value (LTV) ratio and the property’s marketability. Most Canadian mortgage investors or large lenders offer loans up to 75–80% of the property’s appraised value.
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Credit checks are done but the story matters more (in many cases)
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Quick funding—often within 3-10 business days
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Secured against real estate only
Common Use Cases
Hard money mortgages are often used for:
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Emergency repairs
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Mortgage arrears
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Foreclosure avoidance
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Debt consolidation
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Tax arrears or judgments
Key takeaway: If you have equity but no time or income verification, this type of lending may be the fastest route.
Who Can Benefit from Hard Money Lending in Canada?
Bad Credit Borrowers
Borrowers with credit scores below 600 may find it impossible to qualify with a bank. Hard money lenders are often less concerned about credit scores.
Self-Employed or Non-Traditional Income
Those who don’t have consistent T4s or who declare lower income due to write-offs may benefit. These types of loans focus on equity and property value, not tax returns.
Facing Mortgage Arrears or Foreclosure
When traditional lenders won’t refinance, a private mortgage loan can pause collections, pay out arrears, or buy time to sell or recover financially.
Comparing Hard Money to Other Mortgage Options
Hard Money vs. B Lenders: What’s the Difference?
While both hard money lenders and B lenders serve borrowers who don’t qualify with traditional banks, they differ in qualification standards, loan terms, and interest rates. This type of lending is often the last resort for urgent or high-risk situations, whereas B lenders provide a middle ground between banks and private loans.
| Feature | Hard Money Loan | B Lender Mortgage |
|---|---|---|
| Credit Score Needed | Not required or very low acceptable (below 600) | Moderate (typically 580–679) |
| Income Verification | Not always required (equity-focused) | Required (can include stated income or bank deposits) |
| Approval Speed | 1–5 business days | 5–15 business days |
| Interest Rates | High (10%–18%) | Moderate (6%–9%) |
| Loan Term | Short (6–24 months) | Medium-term (1–5 years) |
| Amortization | Interest-only in most cases | Amortized (often 25–30 years) |
| Exit Strategy Needed | Yes (sale, refinance, payout) | Not usually required upfront |
| Typical Use Cases | Foreclosure prevention, emergency needs, arrears | Refinance, purchase with bruised credit, self-employed borrowers |
Hard Money vs HELOC or Refinance
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A HELOC is credit-based (income as well) and slower to fund.
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Refinance options require full income and credit documentation.
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Private lending is short-term and situational, not meant for ongoing financial needs.
Common mistake: Confusing a HELOC with hard money. They serve different financial purposes.
Application Process and What to Expect
What Lenders Look For
Hard money lenders primarily assess:
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Property value
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Existing mortgage balance
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Equity available
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Exit strategy (sale, refinance, inheritance)
Loan-to-value ratios typically range from 65% to 80%.
Appraisal and Legal Fees
Borrowers are responsible for:
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Property appraisal (often $400–$700)
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Legal closing costs
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Brokerage fees (typically 1–5% depending on risk)
- Lending fees (typically 1–5% depending on risk)
Approval Timeline
Private mortgages can be funded in 3–10 business days with the right documentation.
It’s often used for:
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Past due arrears, large collections and more
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Time-sensitive closings (quick closing)
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Pre-foreclosure scenarios
Checklist: What You’ll Need to Apply
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Recent mortgage statement
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Property tax statement
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Two pieces of valid ID
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Estimated property value or recent appraisal
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Proof of arrears (if applicable)
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Exit strategy plan
Important to note: Borrowers are still required to consult with a lawyer to close on this type of mortgage in Canada.
Risks and Costs of Hard Money Loans
Higher Interest Rates & Fees
Expect rates from 9% to 18%, plus lender and broker fees. Monthly interest-only payments are common.
Short-Term Obligations and Exit Strategy
Loans typically range from 6 to 24 months. You’ll need a clear plan to exit the loan, either by:
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Selling the home
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Refinancing to a lower-cost product
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Paying off through other means
Key takeaway: The flexibility comes at a cost. Hard financing loans is not a long-term solution.
Common Myths About Hard Money Lending
Common Myth: It’s Only for Investors
Many Canadians believe equity-based lending is just for flippers or real estate developers. Not true—every day homeowners use these loans to avoid foreclosure, consolidate debt, or handle emergency expenses.
Common Myth: It’s Shady or Unregulated
While hard money is often private, it is still regulated. Lenders must follow provincial guidelines, and borrowers should always work with licensed professionals.
Is Hard Money Lending Regulated in Canada?
Provincial Oversight and Licensing
In Ontario and most provinces, hard money lending must be organized through:
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Licensed mortgage professional through FSRAO (Ontario)
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Working with a licensed mortgage brokerage
- Exempt third-party lenders
Contracts must clearly disclose interest rates, terms, fees, and repayment conditions.
Important to note: Always consult a real estate lawyer before completing a mortgage commitment.
Final Thoughts: Should You Consider Hard Money Lending?
This type of mortgage is a powerful financial tool when time is critical and traditional options are unavailable. If you’re behind on your mortgage, need to cover urgent repairs, or have no other lending route due to poor credit or self-employment, it could be your lifeline.
However, the high interest rates, fees, and short terms make it best for temporary financial gaps, not long-term borrowing.
Key takeaway: Know your exit strategy, assess your repayment ability, and work with professionals.
It’s important to speak with a professional to discover how suitable this type of financing might be for you.
FAQ
Q: What is a hard money mortgage?
A: A hard money mortgage is a short-term loan secured by real estate, offered by private lenders. It relies on the value of the property, not the borrower’s credit history or income documentation.
Q: How quickly can I get a loan in Canada?
A: If all documents are ready and a recent appraisal is available, approval and funding can happen in as little as 3 to 5 business days.
Q: What types of homes are accepted for hard money lending?
A: Most residential properties qualify, including detached homes, condos, cottages, and rental units. Raw land or uninsurable homes may require additional due diligence.
Q: Is it possible to use this type of loan for debt consolidation?
A: Yes. Many borrowers use alternative lenders to consolidate credit cards, lines of credit, tax arrears, and other obligations when traditional banks deny them.
Q: Will a hard money loan affect my credit score?
A: No, but credit checks are required, and the loan itself may not appear on your credit report unless default occurs. Always confirm with your broker.
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