Roughly one in six mortgages in Ontario is funded by a private lender. The province's Financial Services Regulatory Authority puts private mortgages at about 15.8% of the market by number of loans. That share surprises most homeowners. It shouldn't.
Canadian mortgage lending runs on three tiers. A lenders are the banks and credit unions: lowest cost, strictest qualifying. B lenders are regulated trust companies and alternative banks that accept bruised credit and non-traditional income at a premium above bank pricing. Private lenders fund against property equity and a written exit plan, quickly, at the highest cost of the three.
Where your file lands says nothing about you as a person. It comes down to four things: how provable your income is, how clean the last 12 months of credit look, how much equity sits behind the loan, and how fast you need to close. Knowing the tiers before you apply is what stops you from paying private pricing for a file a B lender would have funded. If you are weighing private mortgage options right now, start here.
What A lenders, B lenders and private lenders actually are
The labels are broker shorthand, not legal categories. They describe how much documentation a lender needs before it gets comfortable, and what it charges for the flexibility.
A lenders: banks, credit unions and monolines
These are the big chartered banks, the credit unions, and the monoline lenders that fund through mortgage brokers instead of branches. Federally regulated ones underwrite under Guideline B-20 from the Office of the Superintendent of Financial Institutions, which sets the minimum qualifying rate: your contract rate plus two percentage points, or 5.25%, whichever is higher. Income has to be documented the way the guideline expects. T4s, notices of assessment, two years of filed returns if you work for yourself.
One wrinkle almost nobody explains at the branch: provincially regulated credit unions are not bound by B-20. Some of them will qualify a self-employed file that a bank across the street declined the week before.
B lenders: the regulated middle
B lenders are trust companies and alternative banks, most of them working through the broker channel. They price above A lenders and usually charge a lender fee. In exchange, they will look at a lower credit score, a discharged consumer proposal, a debt ratio slightly past bank limits, or income that arrives as dividends and retained earnings rather than salary.
Terms typically run one to two years. Because B lender mortgages are reported to Equifax Canada and TransUnion Canada, the term itself does repair work on your credit file while you hold it. That single detail is the strongest argument for the middle tier.
Private lenders: equity and exit
Private money comes from mortgage investment corporations, private lending companies, and individuals lending their own capital. The property is underwritten first: loan to value, marketability, location. Income matters far less. In Ontario, private lenders and the brokers who place them fall under FSRA and the Mortgage Brokerages, Lenders and Administrators Act, and other provinces run comparable registries.
Terms are short, commonly six to 24 months, often interest only, and always priced for the risk being taken. A private mortgage is a bridge with a deadline attached, not somewhere to settle in.
So the three tiers do not rank borrowers. They rank how much proof a lender needs up front, and who is willing to be paid to wait for it.
How the three tiers compare on cost, speed and qualifying
Here is the same borrower, seen through three sets of eyes.
| What matters | A lender | B lender | Private lender |
|---|---|---|---|
| Who oversees them | OSFI federally, provincial regulators for credit unions | OSFI, where the trust company or bank is federally regulated | Provincial regulators such as FSRA in Ontario |
| What gets underwritten | Income, credit and the property | The income story, credit history and the property | The property and your exit plan |
| Income documents | T4s, notices of assessment, two years of filed returns | Bank statements, contracts and corporate financials accepted more widely | Often minimal, equity carries the file |
| Stress test | Minimum qualifying rate applies to uninsured files | Applies where the lender is federally regulated | Does not apply |
| Typical term | Three to five years | One to two years | Six to 24 months |
| Relative cost | Lowest | A premium over bank pricing, plus a lender fee | Highest, plus lender and broker fees |
| Speed to funding | Slowest | Moderate | Fastest, days rather than weeks |
| Reported to credit bureaus | Yes | Yes | Often not |
Two rows in that table cause most of the trouble. The first is the stress test. Since 21 November 2024, OSFI no longer expects federally regulated lenders to apply the minimum qualifying rate to a straight switch at renewal, meaning the same balance and the same amortization moving to a new lender. If you are renewing and shopping, that change is worth more to you than any advertised rate.
The second row is how each tier reads debt. A lenders and B lenders both work from gross and total debt service ratios, so a car payment or a credit line balance can push you between tiers while your income stays exactly the same. Our guide to GDS and TDS ratios walks through that arithmetic.
Private lenders barely look at those numbers. They look at what would be left in the property if they ever had to sell it.
Cost deserves the same care. Interest is only part of the bill below the A tier: lender fees, broker fees, legal work and an appraisal sit on top, and short terms mean you pay to arrange the mortgage more often. Ask for the total cost of borrowing in writing before you sign anything, at any tier.
Cheapest on paper is not always cheapest at the end. A file that closes on time at a higher price beats a file that falls apart at a lower one.
Which tier fits your file
Three situations, drawn from the kinds of files that cross a Canadian lender's desk most weeks.
The self-employed contractor in Calgary
Good credit, ten years in business, and two years of T1 Generals showing every legitimate write-off his accountant could find. The bank reads the taxable income line and stops there. A B lender reads the corporate financials and the deposit history and funds it at a premium for two years. That is a textbook B file, and paying private pricing for it would be money set on fire.
The business owner in Mississauga with a CRA balance
A live balance with the Canada Revenue Agency, with lien risk attached, moves a file out of A and usually out of B, because most institutional lenders will not fund behind an unresolved tax debt. A private second mortgage clears the balance in days, and a refinance takes over once the account is settled. We covered financing a CRA payoff separately.
The Halifax homeowner with strong income
Salaried, clean credit, plenty of equity, no deadline. This borrower belongs at an A lender, full stop. If the goal is access to equity rather than a purchase, the real question is which product rather than which tier, and our comparison of a second mortgage against a HELOC covers that fork in the road.
The 4-question placement test
Before you apply anywhere, answer these four honestly:
- Can you document your income the way a bank wants it documented, or only the way your business actually works?
- Are the last 12 months of your credit file clean?
- After this loan funds, how much equity is left in the property?
- How many days do you have before this has to close?
Four comfortable answers and you are an A file. One soft answer usually lands at B. A hard deadline or a lien in the mix, and you are looking at private money whether or not that is what you hoped to hear.
How to move back up a tier, and what goes wrong
Honestly, the most expensive mistake we see is not the rate on a private mortgage. It is sitting in one for three years because nobody built the exit on day one.
Anything below the A tier should be treated as temporary financing. That means naming the way out when the mortgage funds, not the month before it matures.
The 3-part exit plan
Name the exit. There are only three: refinance into a better tier, sell the property, or renew on purpose because the plan genuinely changed. Write down which one you are aiming at, and the date it should happen.
Fix the exact thing that caused the decline. Sometimes that is a discharged proposal that needs seasoning, sometimes a tax balance that needs clearing, sometimes one more filed year in the business. General credit improvement is not a plan. The reason for the decline is your to-do list.
Start 90 days before maturity. Appraisals, payout statements and discharge paperwork take longer than anyone expects, and a lender being paid out on short notice has little reason to be accommodating.
Three mistakes that keep people stuck
Renewing on autopilot is the first one. A short private term renews with fees attached each time, so three quiet renewals can cost more than the rate gap you worried about at the start.
Stacking is the second: another private charge placed behind the first to cover a shortfall. Every new charge eats the equity that was supposed to fund your exit. The same trap runs through business lending, which is why we wrote about stacked merchant cash advances.
Assuming the term rebuilds your credit is the third. Many private lenders do not report to the credit bureaus, so a year of perfect payments can leave your score sitting exactly where it started. If rebuilding is the goal, a B lender term does that work and a private term does not. Our exit guide covers the sequencing in detail.
Solid Capital is a Canadian alternative lender built for homeowners and business owners the big banks decline or under-serve. Our underwriting reads the whole file: bank statements, revenue history, equity and the exit plan, rather than one number from a credit bureau. Curious whether you would qualify? Apply at Solid Capital, see how the process runs, and know that the form takes about five minutes, there is no impact to your credit to apply, and a Canadian advisor reviews every file personally.
Pick the tier your file actually needs, then treat anything below A as a stop on the way somewhere better. The tier is a moment. The plan is the point.
Frequently Asked Questions
What is a B lender in Canada?
A B lender is a regulated trust company or alternative bank that funds mortgages the big banks decline, usually through mortgage brokers rather than branches. B lenders accept lower credit scores, non-traditional income and slightly higher debt ratios, and they charge a premium over bank pricing plus a lender fee. Terms usually run one to two years.
Is a private mortgage the same as a second mortgage?
No. Private describes who lends the money, while second describes where the mortgage ranks on title. A private lender can hold a first, second or third mortgage, and some second mortgages are funded by banks or credit unions rather than private capital.
Do B lenders and private lenders apply the mortgage stress test?
Federally regulated B lenders apply the minimum qualifying rate to uninsured mortgages under OSFI Guideline B-20, which is the greater of your contract rate plus two percentage points or 5.25%. Private lenders and provincially regulated credit unions are not bound by it, which is one reason a file declined at a bank can still be funded elsewhere.
Will a private mortgage help rebuild my credit score?
Usually not on its own. Many private lenders do not report to Equifax Canada or TransUnion Canada, so payment history on that mortgage never reaches your credit file. Rebuilding tends to come from the accounts that do report, and from moving to a B lender at the end of the private term.
How long should you stay with a private lender?
Long enough to fix the reason you were declined, and no longer than that. Most private terms run six to 24 months, and the plan should always be to refinance, sell or move up a tier by maturity rather than renewing by default.
