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How Do Private Mortgages Work in Canada?

Requirements, Rates, Fees and Approval Process

If a bank has turned you down for a mortgage, you’re not alone, and you’re not out of options. A private mortgage in Canada can be a legitimate path forward when traditional lenders say no.

This guide explains how private mortgages work, who uses them, how qualification works, what they cost, and the risks every borrower should understand before signing.

What Is a Private Mortgage?

A private mortgage is a loan secured against your property, funded by private individuals, investor groups, or Mortgage Investment Corporations (MICs), not banks or credit unions. Unlike banks that focus heavily on your credit score and income, private mortgage lenders base their lending decisions primarily on your property’s value and the equity you have in it. That’s what makes private home loans in Canada accessible to people who wouldn’t otherwise qualify through traditional channels.

Private mortgages are typically short-term, ranging from 3 to 24 months, and are often interest-only, meaning your monthly payments cover the interest but don’t reduce the principal you originally borrowed.

Who Uses Private Mortgages?

Borrowers turn to private lenders for a variety of reasons:

Poor or limited credit history: past bankruptcy, consumer proposal, or missed payments
Self-employed income challenges: business owners whose tax write-offs make their net income appear lower than it is
Urgent financing needs: private lenders can sometimes fund a deal in days, not weeks
Unique or non-traditional properties: raw land, fixer-uppers, or rural properties that banks avoid
New to Canada: limited Canadian credit history
Bridge financing: between buying and selling properties

Private mortgages are rarely a first choice for long-term home financing. Instead, they serve as a short-term bridge to better financing down the road. Borrowers across Ontario, BC, Alberta, and beyond seek private mortgage lenders Canada for these exact situations. Companies like BHM Financial provide these types of loans, helping borrowers access funds when traditional banks say no.

How Does Qualification Work?

The qualification process for a private mortgage is fundamentally different from a bank mortgage. Understanding how to qualify for a private mortgage is essential before you apply.

Equity-Based Approval

Rather than focusing on your income or credit score, private mortgage lenders focus on:

Property value: Is the asset worth the investment?
Equity: How much “skin in the game” do you have?
Exit strategy: How will you pay back the loan at the end of the term?

Most private mortgage lenders cap loans at 65–75% of the property’s appraised value (Loan-to-Value or LTV ratio). The lower your LTV, the more lender options you have and the lower your cost. This property-based lending model is what makes alternative mortgage financing possible for borrowers who don’t fit traditional bank criteria.

What You’ll Need to Apply

Typical requirements include:

Property appraisal: confirms market value and supports the LTV ratio
Proof of income: often bank statements showing consistent deposits
Down payment or equity: usually at least 15–20% down if purchasing
A clear exit strategy: essential before you sign

Private lenders typically do not require passing the federal mortgage stress test, which is a major barrier for many borrowers with traditional banks. This makes private mortgage for bad credit and private mortgage for self-employed borrowers more accessible.

Private Mortgage Rates and Fees

Private mortgages in Canada cost significantly more than traditional bank mortgages. Understanding private mortgage costs and fees is crucial before signing any agreement.

Interest Rates

While a traditional mortgage might hover around 4–7%, private mortgage rates in Canada typically range from 8% to over 15%, depending on the risk profile and whether it’s a first or second mortgage. Private mortgage interest rates vary widely based on the lender and your specific situation.

Fees to Expect

Beyond interest, you’ll typically pay:

Lender fees: usually 1% to 3% of the loan amount
Broker fees: may apply if you work through a private mortgage broker
Appraisal, legal, and title fees: additional closing costs

All fees must be disclosed in writing before you commit. The total cost of private mortgage financing can be substantially higher than a traditional bank mortgage.

The Approval Process

The private mortgage approval process is typically faster than a traditional bank mortgage:

Know your equity position: understand how much equity you have in your property
Work with a private mortgage lender: or a licensed broker who can access multiple lenders
Submit your application: with property details, appraisal, bank statements, and exit strategy
Get approved: private lenders can often provide approval within 24 to 72 hours
Close and fund: funding typically happens within days, not weeks

Direct private mortgage lenders often offer faster processing times than traditional banks, making them attractive for borrowers who need quick access to funds. Alternative mortgage lenders can provide solutions that traditional banks simply cannot offer.

Private Mortgage vs Traditional Mortgage

Understanding the private mortgage vs traditional mortgage difference is essential for making an informed decision.

Factor	Private Mortgage	Traditional Mortgage
Approval basis	Property equity and LTV ratio	Income, credit score, and debt ratios
Credit score requirement	No minimum	Typically 620+
Income verification	Lighter requirements	Strict (tax returns, pay stubs)
Stress test required	No	Yes (federal requirement)
Interest rates	8% to 15%+	4% to 7%
Term length	3 to 24 months	1 to 10 years
Approval time	24–72 hours	21–30 days
Fees	1% to 3% lender fees	Lower closing costs

Risks Borrowers Should Understand

Private mortgages come with significant risks that are easy to underestimate when you’re under financial pressure.

Higher Costs

The combination of higher interest rates and lender fees makes private mortgages substantially more expensive than traditional financing. The difference between a 5% bank rate and a 12% private mortgage rate on a $300,000 mortgage amounts to roughly $21,000 per year in additional interest.

Short Terms and Balloon Payments

Most private mortgages are interest-only with terms of 1 to 2 years. At the end of the term, the full principal amount is still owed; you haven’t reduced what you borrowed. Without a solid private mortgage exit strategy, you may face costly renewals or even foreclosure.

Risk of Losing Your Home

Because private mortgages are secured against your property, defaulting can lead to power of sale or foreclosure. Private mortgage foreclosure is a serious risk that borrowers must understand before signing any agreement.

Regulatory Oversight

Private lenders are regulated by provincial bodies, not federal agencies like banks. In Ontario, the Financial Services Regulatory Authority (FSRA) oversees private mortgages and has warned that these loans often come with higher fees, shorter terms, and interest-only payments that can expose financially vulnerable borrowers to increased risk.

The Bottom Line

A private mortgage can be a valuable short-term solution when banks say no, but it’s not a long-term fix. It’s a bridge, not a destination.

At BHM Financial, we understand that every borrower’s situation is unique. Whether you’re exploring private mortgage options in Ontario, BC, or anywhere across Canada, we’re here to help you understand your choices.

Frequently Asked Questions

What is a private mortgage in Canada?

A private mortgage is a short-term loan secured against property, funded by private investors or Mortgage Investment Corporations (MICs) rather than banks or credit unions.