A self-employed renovator in Hamilton needed to close on a property in 18 days. His bank wanted 45 days and three years of clean Notices of Assessment he didn't have. He got the deal done with a private mortgage instead, and closed with a week to spare.
A private mortgage is a loan secured against real estate, funded by a private lender or a Mortgage Investment Corporation rather than a chartered bank. It's approved mainly on the value and equity of the property, not on your credit score or income paperwork. Terms usually run six months to two years, with interest-only payments and a clear exit at the end.
That speed and flexibility is the whole point. If you've been declined by a bank, or you're racing a closing date, the question isn't whether a private mortgage costs more. It's whether it gets you the result a bank can't.
How a private mortgage actually works
A private lender looks first at the property. They want to know its market value, how much equity sits behind your request, and how easily they could recover their money if the deal went sideways. This is why loan-to-value matters more than almost anything else. Most private first mortgages cap out around 75% to 80% of the property's value. Second mortgages sit behind the existing loan and usually push the combined total no higher than 80% to 85%.
The application moves fast because there's less to verify. You're not assembling two years of Canada Revenue Agency paperwork or passing the federal stress test. A private lender wants proof the property exists, proof of your equity, and a believable plan for paying the loan back or refinancing it. That last part is the exit strategy, and it's the piece most borrowers underestimate.
Honestly, the most common reason a private mortgage goes wrong isn't the rate. It's a borrower who took the money without a real plan to get out of it.
What it costs and why
Private mortgage rates sit well above what a bank charges, because the lender is taking on risk the bank refused. You'll also pay a lender fee, often 1% to 3% of the loan, plus legal and appraisal costs. The Bank of Canada sets the overnight rate that influences bank pricing, but private lenders price off risk, not the policy rate, so their numbers move differently.
Here's the honest math. A private mortgage held for a year or two costs more in interest than a bank loan. But a bank loan you can't get is worth nothing. For a borrower who needs to close in 30 days, or who needs 18 months to clean up their file and refinance, the higher rate buys something the bank wasn't selling: a yes.
Who actually uses private mortgages
Self-employed Canadians whose income looks messy on paper. Real estate investors moving faster than a bank can underwrite. Homeowners with strong equity but a recent credit bruise. People mid-divorce who need to buy out a co-owner before a bank will touch the file. The common thread is equity in the property and a timeline or a story the bank's checklist can't accommodate.
If your situation is none of those, a bank or a B lender is probably cheaper and worth the wait. Private money is a tool for a specific job. Use it when the job calls for it.
Planning your exit before you sign
- Refinance to a bank or B lender. You spend 12 to 24 months improving your credit, building reportable income, or seasoning the property, then move to cheaper financing.
- Sell the property. Common for investors and for bridge situations where the private mortgage simply covers a gap.
- Pay it out from another source. A maturing investment, a business sale, or expected funds that land before the term ends.
Write the exit down before you sign. If you can't name which of these three applies to you, you're not ready to borrow yet.
Common mistakes Canadians make
Treating a one-year private mortgage like a 25-year bank mortgage. Borrowing the maximum the equity allows instead of only what the deal needs. Ignoring the lender fee and legal costs when comparing offers. And the big one: no exit plan, which turns a short-term bridge into an expensive trap when the term comes due and there's nowhere to refinance.
At Solid Capital, we're an alternative lender built for Canadians the big banks turn down. We read the whole file, not just the credit score, and a Canadian advisor reviews every application personally. The five-minute application doesn't affect your credit to apply. Start your application here if a private mortgage might be the right tool for your situation.
Conclusion
A private mortgage trades cost for speed and flexibility. It exists for the borrower a bank can't serve on the bank's timeline. Know your loan-to-value, budget for the fees, and write down your exit before you sign. Do that, and a private mortgage stops being a gamble. It becomes a plan.
Frequently Asked Questions
Does a private mortgage affect your credit score? Applying through a lender that reviews your file without a hard credit pull won't affect your score. Whether the mortgage itself reports to Equifax Canada depends on the lender, so ask directly before you sign.
How fast can a private mortgage close in Canada? Many private mortgages close in one to two weeks once the appraisal and legal work are done. In urgent cases with clean equity, some close in a matter of days, far faster than a bank's typical timeline.
What credit score do you need for a private mortgage? There's no fixed minimum. Private lenders weigh property equity and loan-to-value more heavily than your score, which is why borrowers declined by banks often still qualify. Strong equity can offset weak credit.
Can you refinance out of a private mortgage? Yes, and that's the most common exit. After 12 to 24 months of improving your credit or income documentation, most borrowers refinance to a bank or B lender at a lower rate. Plan that exit before you take the private mortgage.
