Private mortgage lenders fill the gap when banks and B-lenders say no, or when a loan is needed faster or on a property they won’t touch. They lend mainly against the equity in the property, for short terms and at the highest cost in the market, so a private mortgage works as a bridge to cheaper financing rather than a long-term home loan. This page explains when private lending is used, how the loans are structured, what they cost, which mortgage investment corporations lend to borrowers, the red flags, and how to plan the exit. It is part of our guides to lenders and brokers.
When private lending is used
| Situation | Why banks and B-lenders decline | How a private lender approaches it |
|---|---|---|
| Very low credit score | Below even B-lender minimums | Lends on the equity rather than the score |
| Active consumer proposal | Most B-lenders wait until it is complete | May lend if the equity is strong |
| Recently discharged bankruptcy | Too recent for institutional lenders | Looks at the current equity position |
| Urgent timeline | A closing in days, not weeks | Can approve and fund quickly |
| Non-standard property | Rural, mixed-use or unusual construction; vacant land | More flexible on property type |
| Renovate, then refinance | The home doesn’t support a bank mortgage in its current state | Funds the purchase or the work, then a bank refinances at the higher appraised value |
| Debt consolidation in a crisis | Credit or income doesn’t support a refinance | A private second mortgage pays off high-interest debt |
| Bridge financing | Buying before the current home’s sale closes | Short loans for the gap; banks also offer bridge financing to qualifying borrowers |
| Property tax arrears | Arrears must be cleared before a new mortgage | Can pay the arrears as part of the loan |
Self-employed borrowers with little documented income sometimes use a private loan too, although a B-lender’s stated-income program is usually cheaper; self-employed mortgages compares the routes.
How private mortgages work
- The application usually goes through a mortgage broker, who knows which private lenders and MICs take which files.
- The lender appraises the property, since the property is its main security.
- Approval rests on the loan-to-value ratio. Income and credit matter less than how much equity is left after the loan.
- The term is short, commonly one year and sometimes two.
- Rates and fees are higher to compensate the lender for the risk.
- An exit plan is part of the deal: a refinance with a bank or B-lender, or a sale, before the term ends.
| Feature | Typical terms |
|---|---|
| Interest rate | Well above bank and B-lender rates; second mortgages cost more than first mortgages |
| Term | One year most often, sometimes two |
| Payments | Usually interest-only; some loans amortize |
| Maximum loan-to-value | Often 65% to 75% on a first mortgage, and up to about 80% combined with a second |
| Lender fee | Commonly 1% to 3% of the loan, taken from the advance |
| Broker fee | Commonly 1% to 2%, sometimes included in the lender fee |
| Appraisal and legal fees | Paid by the borrower, including the lender’s legal costs |
| Prepayment | Varies: some loans are open, others charge a penalty such as three months’ interest |
| Renewal | Not guaranteed; the lender may decline or change the terms |
When a broker arranges a private loan, the borrower often pays a broker fee as well as the lender fee; how mortgage brokers get paid explains when that happens and how it has to be disclosed.
Interest-only vs amortized payments
On a $400,000 private first mortgage at 9% (an illustrative rate):
| Payment type | Monthly payment | Principal repaid after one year |
|---|---|---|
| Interest-only | $3,000 | $0 |
| Amortized over 25 years | $3,312 | $4,583 |
Interest-only keeps the payment lower because none of it goes to principal; with a one- or two-year term and a refinance planned, paying down principal is rarely the goal.
What a private mortgage costs
A one-year, interest-only private first mortgage of $400,000 at 9%, with a 2% lender fee and a 1% broker fee:
| Cost | Amount |
|---|---|
| Interest for 12 months | $36,000 |
| Lender fee | $8,000 |
| Broker fee | $4,000 |
| Appraisal | $450 |
| Lender’s legal fees | $2,000 |
| Your own legal fees | $1,500 |
| Total for the year | $51,950 |
That is why private loans are planned as a bridge: moving to a B-lender or bank at the end of the term brings a far lower rate. The B-lender roundup compares the lenders a private borrower usually moves to next.
Mortgage investment corporations that lend to borrowers
A mortgage investment corporation (MIC) pools investors’ money and lends it out as mortgages. MICs range from large companies listed on the Toronto Stock Exchange to small private funds, and they are generally a more established source of private money than an individual lender. How a MIC is structured and taxed, and what it means for investors, is covered in the guide to mortgage investment corporations.
| Lender | What it is | Notes |
|---|---|---|
| Firm Capital Mortgage Investment Corporation | TSX-listed MIC (TSX FC) that lends through Firm Capital Corporation, a non-bank lender offering residential and commercial short-term bridge and conventional financing | Short-term lending, including bridge and construction loans |
| Atrium Mortgage Investment Corporation | TSX-listed MIC (TSX AI) lending on commercial and residential real estate | Major urban centres in Ontario and Western Canada |
| Fisgard Capital | Mortgage investment company that invests in mortgages secured by Canadian real estate | Based in British Columbia |
| Trez Capital | Private lender focused on commercial real estate and development projects | Lends mainly on construction and development, not individual home purchases |
Terms such as the rate, maximum loan-to-value, minimum loan and fees are set loan by loan and change with the market, so they come with the broker’s quote. Most MICs lend through mortgage brokers rather than taking applications from the public.
Who regulates private lending
Mortgage brokers and agents who arrange private mortgages must be licensed by their province, and the provincial regulator lists licensees; what a mortgage broker does covers the licensing rules by province. An individual lending their own money isn’t supervised the way a bank is, and private lenders aren’t bound by the federal mortgage stress test. That puts more weight on the borrower’s own lawyer, who reviews the commitment and the mortgage documents before signing.
Red flags
| Red flag | Why it matters |
|---|---|
| Fees before approval | Legitimate lenders deduct their fees from the mortgage advance, so a fee demanded before funding is a warning sign |
| Pressure to sign immediately | Time to review the documents with a lawyer is normal |
| No written commitment | Every term (rate, fees, term, renewal and prepayment) belongs in writing before you agree |
| A rate or fees far above other quotes | Comparing two or three private offers shows what the market charges for the file |
| No independent legal advice | The lender has its own lawyer, and the borrower should have one too |
| Verbal promises | A promise to renew that isn’t in the commitment isn’t binding |
| A request for power of attorney over the property | No legitimate lender needs one |
Private second mortgages
A private second mortgage sits behind an existing first mortgage and borrows against the remaining equity, often to consolidate high-interest debt or cover an emergency. Second mortgages cost more than first mortgages because the second lender is repaid only after the first.
A home worth $600,000 has a first mortgage of $350,000, a loan-to-value of 58%. If the second lender caps the combined loan-to-value at 80%, the combined limit is $480,000, so the second mortgage could be up to $130,000.
A second mortgage can make sense to pay off credit card debt at a much higher rate, to clear tax arrears before they become a lien, or for urgent repairs; it adds risk when it funds ongoing spending or there is no plan to repay. The second mortgage calculator estimates the payments and blended rate.
Planning the exit
A private mortgage taken without an exit plan can become a cycle of renewals and fees. The plan is usually set out with the broker before signing:
Exit 1: move to a B-lender or bank at the end of the term
| Action | When | Goal |
|---|---|---|
| Make every payment on time | Throughout the term | Show a clean payment record |
| Use a secured credit card lightly and pay it in full | From the start | Rebuild credit history |
| Deal with remaining collections | Early in the term | Clean up the credit report |
| Keep income documentation in order | Throughout | File returns that show the real income |
| Save for the next lender’s fees | Throughout | B-lenders often charge a lender fee |
| Apply to the next lender a few months before maturity | Before the term ends | Time for approval, appraisal and legal work |
The lenders for each credit band, and the ladder back to bank rates, are in the guide to lenders for bad credit.
Exit 2: refinance on the equity
If the property’s value has risen, through the market or a renovation the private loan paid for, a new appraisal can show a lower loan-to-value that a bank or B-lender will refinance.
Exit 3: sell the property
If no lender will refinance and the private lender won’t renew on workable terms, selling keeps the remaining equity and stops the costs from compounding.
Exit 4: renew with a private lender
Renewing privately is the fallback. A renewal fee is usually lower than the original setup fee and is negotiable, and the new rate and terms belong in writing before the old term ends.
Related pages
Sources
The figures and rules on this page come from these sources, last checked against them between October 2, 2026 and October 5, 2026. How we check facts.
- atriummic.com: Atrium Mortgage Investment Corporation
- Bank of Canada: Conventional 5-year mortgage rate (data series)
- Bank of Canada: Conventional 5-year mortgage rate (data series)
- Bank of Canada: Conventional 5-year mortgage rate (data series)
- Bank of Canada: Data table
- firmcapital.com: Firm Capital Mortgage Investment Corporation | Firm Capital