What Is a Private Mortgage and When Should You Consider One?

When traditional banks say no — or when time is working against you — a private mortgage can be a fast, flexible solution. Private lenders play a major role in Canada’s mortgage landscape, helping buyers, investors, and homeowners access financing that banks simply can’t offer under strict regulatory rules.

But while private mortgages offer speed and flexibility, they also come with higher costs and specific risks. Here’s a complete guide to what private mortgages are, how they work, and when they make sense.

What Is a Private Mortgage?

A private mortgage is a loan funded by an individual, mortgage investment corporation (MIC), or private lending company rather than a bank or credit union.
Private mortgages are typically short-term (6–24 months) and focus on:

• The equity in the property

• The borrower’s exit strategy

• The overall risk of the deal

Private lenders care less about credit score and income, and more about the value of the home and the likelihood of repayment.

Key Features of a Private Mortgage

✔ Equity-Based Lending

Approval is mainly based on the property’s loan-to-value (LTV), not traditional credit metrics.

✔ Fast Approvals

Private lenders can fund deals in 24–72 hours, ideal for urgent financing needs.

✔ Short Terms

Most private mortgages last 6–24 months, giving borrowers time to refinance with a bank later.

✔ Flexible Requirements

Ideal for borrowers who don’t meet bank guidelines for income, credit, or documentation.

✔ Interest-Only Payments

Most private mortgages allow interest-only payments, keeping monthly costs manageable.

When Should You Consider a Private Mortgage?

1. You Don’t Qualify for a Traditional Mortgage

Private mortgages help borrowers with:

• Low credit scores

• High debt

• Non-traditional or unverifiable income

• Past bankruptcies or consumer proposals

If banks decline your application, a private lender may still approve you.

2. You Need Fast Financing

Private lenders are ideal for buyers who need to close quickly, such as:

• Competitive bidding situations

• Closing delays with banks

• Bridge financing

• Time-sensitive investment deals

Speed is a major advantage.

3. You’re Self-Employed or Have Complex Income

Private lending works well when tax returns don’t fully reflect true income, especially for:

• Business owners

• Commission earners

• Contract workers

• Gig-economy earners

Private lenders rely more on equity than traditional income verification.

4. You’re Renovating or Flipping a Home

Banks often avoid lending on properties needing repairs. Private lenders regularly approve:

• Fix-and-flip projects

• Construction holds

• BRRRR strategy investments

A private loan can help unlock equity after improvements are made.

5. You Need a Second Mortgage for Debt Consolidation

Private second mortgages allow homeowners to:

• Pay off high-interest credit cards

• Consolidate loans

• Rebuild credit

• Lower monthly payments

Even if credit is bruised, equity can open doors.

6. You Need Bridge Financing

Private lenders often step in for:

• Buying a new home before the old one sells

• Capitalizing on investment opportunities

• Covering short-term cash flow gaps

Banks have strict rules for bridge loans — private lenders don’t.

Pros & Cons of Private Mortgages

Pros

✔ Fast approvals
✔ Flexible lending rules
✔ Ideal for complex files
✔ Interest-only payments
✔ Short-term solution for bigger goals

Cons

❌ Higher interest rates (8%–15%+)
❌ Lender fees & broker fees
❌ Short terms require a clear exit strategy
❌ Not ideal for long-term financing

What Is a Good Exit Strategy?

Private lenders expect a plan for how you'll repay the loan. Common exit strategies include:

• Refinancing with a bank once credit improves

• Selling the property

• Receiving proceeds from another property sale

• Completing renovations to boost value

• Business income stabilization

A strong exit strategy = easier approval + better terms.

Who Should Avoid Private Mortgages?

A private mortgage may not be suitable if:

• You don’t have a realistic exit strategy

• You cannot handle fees or higher interest

• You have limited equity in the property

Private lending is a tool — but only when used correctly.

Final Thoughts

Private mortgages are powerful solutions for borrowers who need speed, flexibility, or short-term financing that banks can’t provide. When used strategically and with a solid exit plan, they can help homeowners consolidate debt, investors grow their portfolios, and buyers secure homes that would otherwise be out of reach.

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