Maximum Interest on a Private Mortgage in Ontario: The 35% Cap

Private lenders often fill the gap when a bank will not lend, and their offers usually come with higher rates and extra fees. If you have been offered a private mortgage with a rate or fee structure that feels very high, you may wonder whether there is a legal ceiling.

There is one in the Criminal Code, but it works on the total cost of borrowing, not just the rate on the first page of the commitment. This article explains how the cap works, what counts toward it, and what to do before you sign. It is general information, not advice on a specific offer.

The 35% annual percentage rate cap

Under section 347(1) of the Criminal Code, entering into an agreement or arrangement to receive interest at a criminal rate, or receiving such interest, is an offence. It is punishable on indictment by up to five years' imprisonment or on summary conviction by a fine of up to $25,000.

A criminal rate is an annual percentage rate, calculated under generally accepted actuarial practices and principles, that exceeds 35 per cent on the credit advanced. The current text uses 35 per cent, in force from January 1, 2025; the previous cap was a 60 per cent effective rate. If you read older articles or lender materials mentioning 60 per cent, they may be out of date.

What counts as interest

The cap is not limited to the rate stated in the mortgage. For this section, interest means the aggregate of all charges and expenses, whether in the form of a fee, fine, penalty, commission or other similar charge, paid or payable for the advancing of credit. That captures lender fees and bonuses on private mortgages.

Some items are excluded, including insurance charges, official fees and, for mortgages, property taxes.

The other half of the calculation is the amount of credit advanced. This is the money and monetary value of goods, services or benefits actually advanced, reduced by fees, penalties and similar charges deducted. If a lender deducts a fee from your advance, you receive less but pay interest on the larger amount, which raises the effective rate.

Commercial loan exemptions and why they rarely help a homeowner

The Criminal Interest Rate Regulations exempt some commercial loans from the 35 per cent cap. The borrower must be a non-individual and borrowing for a business or commercial purpose. Loans over $10,000 up to $500,000 are subject to a 48 per cent APR ceiling, and loans over $500,000 have no cap.

Loans of $10,000 or less, and loans to individuals for personal purposes, remain under the 35 per cent cap. A homeowner borrowing personally against their home would generally fall on the capped side, but how a loan is structured, for example through a corporation, can change the analysis. That is a question to put to a lawyer before signing.

Other rules that affect a private mortgage

• Mortgage brokers and agents in Ontario must give written disclosure under the Mortgage Brokerages, Lenders and Administrators Act, 2006 and its regulations.
• Private lenders and investors must receive the prescribed Form 1 disclosure signed by a licensed broker, and fees must be paid to the brokerage and disclosed in writing.
• Interest on arrears cannot be at a higher rate than the rate on principal not in arrears.
• Added discharge fees must be justifiable; the Ontario Court of Appeal upheld disallowing unexplained professional and administrative fees.
• A three-month interest compensation charge was held not to violate section 8 of the Interest Act in one Ontario Court of Appeal decision, so some charges survive challenge depending on the facts.

What to do before and after you sign

• Ask for every cost in writing: rate, lender fee, broker fee, bonus, legal fees and any other charge.
• Note which fees will be deducted from the advance, because they reduce the credit you actually receive.
• Ask whether the written broker disclosure and the Form 1 disclosure have been provided.
• Have a lawyer or accountant calculate the annual percentage rate on the credit advanced, including all charges counted as interest.
• Check how late payments, default and early payout are charged before you agree.
• If you have already signed and think the cost is too high, gather your documents and speak to a lawyer promptly about your options.

If a dispute arises over fees added to a payout figure, a borrower can bring a court application, and the court can decide whether added fees are legitimate. Which remedy fits depends on the facts, so get legal advice early rather than after closing.

Frequently asked questions