Private Mortgages in Ontario: How They Work and What to Watch Out For

When a bank or credit union says no, a private mortgage can feel like a lifeline. Private mortgages in Ontario are loans secured against real property and funded by individual investors or mortgage investment corporations (MICs) rather than regulated deposit-taking institutions. They fill a genuine gap — but they come with trade-offs that every borrower should understand before signing anything.

This article explains how private mortgages work in Ontario, what they cost, and what legal protections (and risks) apply to you.

Who Uses a Private Mortgage?

Private lenders are not charities. They accept higher risk — often lending to borrowers with bruised credit, non-traditional income, or properties that don't fit bank guidelines — and they price that risk accordingly. Common scenarios include:

• Self-employed borrowers whose income is hard to document to lender standards
• Borrowers between transactions — bridging a purchase before a sale closes
• Property types banks won't touch (rural land, properties with title issues, commercial-residential mixes)
• Credit repair strategy — using a private mortgage short-term while rebuilding credit to refinance with an A or B lender

How Private Mortgages Are Structured in Ontario

The mortgage document itself

A private mortgage in Ontario is registered against the title of your property under the Mortgages Act and/or the Land Registration Reform Act, just like a bank mortgage. The lender (mortgagee) gets a charge on title; you (the mortgagor) keep possession as long as you make payments.

Most private mortgages are first charges (if there is no existing mortgage) or second charges (if a bank mortgage already sits in first position). The priority of charges matters enormously in a default scenario — a second-position lender is only paid after the first is fully satisfied.

Typical terms

Private mortgages are almost always short-term: one year is common, two years less so. At the end of the term you either refinance, renew with the same lender, or repay in full. Very few private lenders offer 25-year amortizations.

Interest rates as of writing are substantially higher than institutional rates — often in the range of several percentage points above what an A lender would charge, and higher still for lower-quality collateral or weaker borrower profiles. Always verify current market rates with a licensed mortgage broker.

Lender fees and broker fees

Beyond the interest rate, expect:

• Lender fee: typically 1–3% of the loan amount, deducted from your advance
• Broker fee: if a mortgage broker arranged the deal, they charge a fee (rules under the Mortgage Brokerages, Lenders and Administrators Act, 2006 govern disclosure of these fees)
• Legal fees: both you and the lender typically retain separate lawyers — you pay your own lawyer; the lender's legal fees are often charged to the borrower on top of everything else

Always get the complete cost of borrowing in writing before you commit.

Legal Protections for Borrowers

Ontario's Mortgage Brokerages, Lenders and Administrators Act, 2006 (MBLAA) requires that anyone brokering a private mortgage hold a licence. Your broker must:

• Provide you with a Disclosure to Borrower form before you commit
• Clearly disclose all fees and the effective annual interest rate
• Act in your best interest (as your agent)

If a private mortgage is arranged without a licensed broker — for example, directly between you and a family member or acquaintance — no brokerage rules apply. In that case, it is especially important that each party retain an independent lawyer.

Under the Criminal Code of Canada, charging more than 60% effective annual interest is a criminal offence regardless of what the loan documents say. This rarely comes up with legitimate MICs but can arise with disreputable individual lenders.

Your right to redeem

Under Ontario's Mortgages Act, you generally have the right to pay off your mortgage at any time. However, private lenders often include interest on the full term as a prepayment condition — meaning if you pay out a 12-month mortgage at month 3, you may still owe interest for the remaining 9 months. Review this clause carefully.

What Happens If You Default?

If you stop making payments, a private lender can exercise remedies faster than many borrowers expect. Unlike federally regulated banks, private lenders are not required to follow OSFI guidance on mortgage arrears management. In Ontario, the formal process to force a sale (power of sale) can begin after 15 days of default in most cases, though the full process takes several months.

The practical reality: private lenders often prefer to negotiate rather than litigate. But you have less cushion than with an institutional lender. If you are in arrears on a private mortgage, speak with a lawyer immediately.

When Does a Private Mortgage Make Sense?

A private mortgage can be the right tool when:

1. You have a clear, short-term need (bridge, credit repair, specific property type)
2. You have a realistic exit strategy — a way to pay off or refinance before the term ends
3. You have compared the total cost (interest + all fees) against alternatives
4. You have reviewed the commitment letter and mortgage terms with your own lawyer

It rarely makes sense as a long-term financing solution given the cost.

Frequently asked questions