Private Mortgages in Ontario
A private mortgage may help when a bank or standard lender is not the right fit, but it should be reviewed carefully because the costs, risks, and exit plan matter.
A private mortgage in Ontario is a mortgage secured against real estate through a non-bank lender. The lender may be an individual investor, a mortgage investment corporation, or another private source of funds.
Private mortgages can help when timing is tight, when income is harder to prove, when credit issues are creating problems, or when the file needs more flexibility than a traditional mortgage can offer.
They can be useful in the right situation, but they are usually best treated as a short-term solution with a clear plan to pay the mortgage out later.
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Quick Answer
A private mortgage may fit if you have enough equity, the file does not fit a bank well right now, and there is a realistic plan to pay the mortgage out later. It may not be the right answer if a lower-cost refinance, renewal option, or second mortgage can solve the problem more cleanly.
When a Private Mortgage May Make Sense
- You have enough equity in the property.
- Your income is real, but harder to prove the way a bank wants.
- Your credit history is limiting standard mortgage options right now.
- You need short-term financing while working toward a cleaner refinance later.
- You need to solve a time-sensitive issue.
- The property or file structure is unusual enough that standard lenders may not be the best fit.
When a Private Mortgage May Not Be the Right Fit
- A lower-cost traditional or alternative mortgage option is available now.
- There is very little equity in the property.
- There is no clear plan to pay the mortgage out later.
- The real need is a long-term affordable solution.
- The cost mostly delays the problem instead of solving it.
If the main issue is irregular income, it may help to review mortgage options with income issues. If the main issue is bruised credit, compare mortgage options with credit issues.
How Private Mortgages Usually Work
Private mortgages are usually built as short-term solutions, not permanent financing. In many cases, the monthly payment may be interest-only. That can reduce the monthly payment compared with a fully amortized mortgage, but it also means the principal balance may not reduce much during the term.
- Term: often shorter-term, depending on the file and lender.
- Payments: often interest-only.
- Position: may be a first mortgage or second mortgage.
- Approval focus: often more weight on equity, property, and exit plan.
- End of term: the mortgage usually needs to be paid out, refinanced, sold, or renewed if the lender agrees.
What Private Lenders Usually Review
Every file is different, but private mortgage lenders often place more weight on the property, available equity, loan position, and exit plan than a standard bank lender would.
- The property value and condition.
- The amount of equity available after existing mortgages and secured debts.
- Whether the private mortgage will be in first or second position.
- The reason the money is needed.
- The borrower’s payment ability.
- The plan to repay or replace the private mortgage.
Costs and Risks to Understand
Private mortgages are usually more expensive than bank mortgages. The exact cost depends on the property, equity position, timeline, loan size, borrower profile, and the lender’s view of risk.
- Higher interest rate than a standard mortgage.
- Lender fees.
- Broker fees where applicable.
- Appraisal costs.
- Legal fees.
- Possible renewal, extension, discharge, or default-related costs.
Key Risks
- Higher cost: private money usually costs more than standard mortgage money.
- Short-term pressure: the mortgage may need to be replaced or paid out sooner than expected.
- Limited principal reduction: interest-only payments may not reduce the balance.
- Renewal is not guaranteed: the lender does not have to extend the mortgage later.
- Enforcement risk: because the mortgage is secured by the property, missed payments can become serious quickly.
A Clear Exit Plan Matters
Before arranging a private mortgage, the most important question is what happens next. A good exit plan may include improving credit, documenting income, paying down debts, refinancing with an alternative lender, returning to a bank lender, or selling the property if that is the practical solution.
Without a realistic exit plan, a private mortgage can become expensive very quickly. The goal should be to solve the immediate problem while keeping the next step visible.
Compare Related Options
- Refinance: Refinancing in Ontario
- Renewal: Mortgage renewal options
- Second mortgage: Second mortgages in Ontario
- Debt consolidation: Debt consolidation mortgage options
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About Roger
Roger Carroll is the mortgage broker behind MortgageOntario.ca. He works with Ontario homeowners who need clear, practical guidance on refinancing, renewals, private mortgages, second mortgages, and other equity-based options.
The goal is simple: explain the options clearly, point out the trade-offs honestly, and help you decide whether a private mortgage actually fits your situation.
Before committing to private mortgage terms, review the property, equity, total cost, and exit plan carefully.