Private vs. Traditional Mortgages: What’s the Difference?

Not every borrower fits the strict rules of Canada’s major banks — and that’s exactly why private lenders play such an important role in today’s mortgage landscape. Whether you're self-employed, rebuilding credit, or facing a tight deadline, you may be offered either a traditional (A-lender) mortgage or a private mortgage.

But the two products couldn’t be more different.
Here’s a clear, borrower-friendly breakdown of how private and traditional mortgages work, who they’re designed for, and when each one makes the most sense.

What Is a Traditional Mortgage?

A traditional mortgage is offered by federally regulated A-lenders such as:

• Big banks (TD, RBC, Scotiabank, BMO, CIBC)

• Credit unions

• Monoline lenders (RFA, MCAP, First National)

These lenders follow strict rules set by OSFI and CMHC.

Key characteristics of traditional mortgages:

✔ Lowest interest rates
✔ Strict income and credit requirements
✔ Must pass the mortgage stress test
✔ Longer mortgage terms (1–5 years)
✔ Best for borrowers with strong credit & stable income

Traditional mortgages are the most affordable option — but also the hardest to qualify for.

What Is a Private Mortgage?

A private mortgage is funded by:

• Individual lenders

• Mortgage investment corporations (MICs)

• Private lending companies

These lenders focus on equity, not credit or income, and offer short-term financing (6–24 months).

Key characteristics of private mortgages:

✔ Fast approvals
✔ Flexible documentation
✔ Equity-based lending (up to 75–85% LTV)
✔ Interest-only payments
✔ Ideal for unique or urgent situations

Private mortgages come with higher rates and fees but solve problems banks can’t.

Private vs. Traditional Mortgages: Side-by-Side Comparison

FeatureTraditional MortgagePrivate MortgageInterest Rates4–6%8–15%Approval Speed5–10 days24–72 hoursIncome VerificationStrict (T4s, NOAs, job letters)Flexible (bank statements, stated income)Credit Score Requirements680+ preferred500+ consideredLoan-to-Value (LTV)Up to 95% (insured)65–85%Terms1–5 years6–24 monthsBest ForStrong income/credit borrowersBorrowers needing flexibility or fast funding

When a Traditional Mortgage Is the Best Choice

✔ You have a strong credit score (680+)
✔ You can pass the mortgage stress test
✔ You have stable, provable income
✔ You want the lowest possible interest rate
✔ Your timeline is flexible

Traditional financing is the ideal long-term solution for most Canadians.

When a Private Mortgage Makes More Sense

Private lending is a short-term bridge when banks say no.

Consider a private mortgage if:

✔ You’re self-employed with low reported income
✔ You need fast approval to close a deal
✔ You’re consolidating debt or paying CRA arrears
✔ Your credit score is damaged
✔ You’re flipping or renovating a home
✔ Your bank decline came last minute
✔ You need a second mortgage and banks won’t offer one

Private mortgages solve immediate problems and buy time to refinance later.

Pros & Cons of Traditional Mortgages

Pros

✔ Lowest cost
✔ Best long-term financing
✔ Predictable payments
✔ Wide lender options

Cons

❌ Stress-test challenges
❌ Strict document requirements
❌ Slow approvals
❌ Less flexible for self-employed borrowers

Pros & Cons of Private Mortgages

Pros

✔ Very fast approvals
✔ Flexible income and credit requirements
✔ Great for unique or urgent situations
✔ Interest-only payment options

Cons

❌ Higher interest & fees
❌ Short-term only
❌ Requires strong equity
❌ Must have a clear exit strategy

Which One Should You Choose?

Choose a Traditional Mortgage if:

You qualify easily and want the lowest cost for long-term financing.

Choose a Private Mortgage if:

You need funding quickly, can’t qualify traditionally, or need short-term flexibility.

Many borrowers start with a private mortgage and refinance into an A-lender within 6–24 months once credit improves or income stabilizes.

Final Thoughts

Private and traditional mortgages both play essential roles in Canada’s lending system. Traditional mortgages offer low-cost stability for qualified borrowers, while private mortgages provide speed and flexibility when time, credit, or documents are an issue.

With the right guidance, borrowers can use these financing tools strategically — often starting with a private mortgage and transitioning into a traditional lender once they qualify.

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