What is a private mortgage and when does it make sense in Ontario?

A private mortgage is a loan secured against real estate that is funded by an individual investor or a mortgage investment corporation (MIC) rather than a bank or regulated lender. Private lenders are not subject to the same underwriting rules as banks, so they can approve borrowers who do not qualify through conventional channels.

Private mortgages are commonly used for short-term bridge situations: buying a new home before selling the old one, purchasing a property that does not meet conventional lender standards, or consolidating urgent debts when bank qualification fails. They can also help borrowers who are self-employed with irregular income, have recent credit problems, or own non-standard property types.

The trade-off is cost. Private mortgage rates are significantly higher than institutional rates, and lenders typically charge lender fees of one to three percent or more of the loan amount. Combined with legal fees, the total cost can be substantial. Most private mortgages are short-term — commonly one year — with the expectation that the borrower will refinance to a conventional lender once the situation improves. Always work with a licensed mortgage broker and your own lawyer when arranging private financing to ensure the terms are fair.