Canadian banks will lend up to 80% of the value of a rental property, and not a dollar past it. That ceiling comes from the rules around mortgage default insurance, which CMHC does not offer on a home you do not live in. Fail the qualifying rate math on top of that, and the file stops at the branch.
A private mortgage for a rental property is a loan from an individual lender, a mortgage investment corporation, or an alternative lender, registered against the rental itself. Approval rests on the equity in the property and the credibility of your plan to refinance out, not on whether your income clears a bank's qualifying rate. Terms usually run one to two years, often interest only.
This guide is for Canadian investors and small landlords who own something real and got told no anyway. If you want the equity math first, our guide on how much equity you need for a private mortgage covers the thresholds. Here we stay on rentals, where the tenant, the lease, and the exit plan carry as much weight as the appraisal.
When a private mortgage on a rental property makes sense
Start with what a bank is actually working from. On a one to four unit property you do not occupy, the minimum down payment is 20%, because default insurance is not available on non-owner-occupied homes. Federally regulated lenders then apply the stress test under OSFI Guideline B-20, qualifying you at the greater of your contract rate plus two percentage points or 5.25%. Both rules are firm. Neither bends for a good tenant.
So rental files tend to break in the same few places:
- You already carry two or three mortgages, and your total debt service ratio counts every one of them at the qualifying rate.
- Self-employed or commission income the bank cannot verify with two years of assessments.
- A closing date 12 days out, against bank underwriting queues measured in weeks.
- A property that needs work before it will appraise or rent at market.
- Recent arrears, a consumer proposal, or a bruised credit file sitting behind an otherwise healthy building.
Honestly, if you own a rental with real equity and a tenant paying market rent, a bank decline is a paperwork problem, not a verdict on the deal. Private financing bridges that gap. It buys 12 to 24 months to fix whatever the bank objected to: season the income, finish the renovation, clear the arrears, then move back to cheaper money.
How private lenders read a rental property file
Equity comes first. A private lender asks one question ahead of every other: if this goes sideways, does the property sell for enough to clear the debt? That is why loan to value drives the decision, and why a rental in a city with steady buyer demand borrows more easily than the same building three hours from anywhere.
What actually gets checked
- Appraised value, plus how quickly comparable properties are selling in that market.
- Existing charges on title: first mortgage balance, any second, property tax arrears, and any Canada Revenue Agency lien.
- The rent roll. Signed leases, rent actually collected, and whether units sit at or below market.
- Whether every unit is legal and permitted. An unregistered basement suite can shrink the value a lender will work with.
- Your exit. The specific route back to an A or B lender, with a date attached.
| Lender type | What it weighs most | Stress test applies | Typical term | Speed to close |
|---|---|---|---|---|
| Bank (A lender) | Income, credit score, debt service ratios | Yes, under B-20 | 3 to 5 years | Weeks |
| Credit union or B lender | Income, with some flexibility on how it is proven | Varies by province | 1 to 3 years | 1 to 3 weeks |
| Private lender or MIC | Property equity, marketability, exit plan | No | 1 to 2 years | Days, in many cases |
That third row is the part investors underestimate. Private lenders and mortgage investment corporations are not federally regulated, so B-20 does not reach them. It does not mean nobody reads your file. It means the reading starts with the asset instead of your notice of assessment. Solid Capital's private mortgage team works the same way, with a Canadian advisor on every file.
Where a rental stops being residential
Unit count changes the rulebook. One to four self-contained units is residential lending, priced off your personal income and credit. At five units the file turns commercial, and underwriting shifts onto the building itself through the debt service coverage ratio, which measures net operating income against the payments. If you own four units and are eyeing a fifth, sort the financing out before the offer goes in.
Which is why a strong rental behind a bruised borrower often funds, and a strong borrower behind a weak rental often does not.
What it costs and how to get funded
Private money is priced above bank money. That is the trade for speed and for underwriting that looks past a credit score, and any lender who suggests otherwise is selling something. Rather than chasing rates that move, price the whole deal: interest, lender fee, broker fee, appraisal, legal, and title work. Most of it comes off the advance instead of out of your chequing account, so the amount that lands is smaller than the amount registered on title. Our breakdown of private mortgage fees in Canada walks through each line.
In Ontario, mortgage brokerages are licensed and supervised by the Financial Services Regulatory Authority of Ontario, with rules covering what can be charged and when. Every province has an equivalent regulator, and the Financial Consumer Agency of Canada sets out what a cost of borrowing disclosure has to tell you. Ask for yours in writing before you sign anything.
The 5-Step Rental Property Funding Path
- Position the property. Pull the current mortgage statement, the property tax account, and every signed lease. Missing leases slow rental files more than anything else.
- Establish value. The lender orders an appraisal. Rentals are valued on comparable sales, and in some cases on the income the building produces.
- Set the loan amount. Existing charges plus the new loan have to sit inside the lender's loan to value limit, which on a rental is commonly tighter than on a principal residence.
- Write the exit. Name the lender you intend to refinance with and what has to change for them to approve you. A term with no exit is a term that ends badly.
- Close. Your lawyer registers the charge, arrears are cleared from the advance where required, and funds release. Our application process takes about five minutes to start, with no impact to your credit to apply.
Step four is the one people skip, and it is the only step that decides whether the loan was smart or expensive. Plan the way out before you take the money in. Our guide to a private mortgage exit strategy shows what a lender wants to see there.
Mistakes that sink rental property deals
Rental deals rarely fall apart at the application. They fall apart at the lawyer's office, usually over something the borrower genuinely forgot.
- A second mortgage or lien nobody disclosed, found on title two days before closing.
- Property tax arrears that have to be cleared from the advance, shrinking the funds you actually receive.
- Leases well below market, which cut both the income the property can show and the value a future lender will assign to it.
- An unpermitted unit. The rent is real. The appraisal may not count it.
- Borrowing right to the ceiling, leaving nothing for vacancy, repairs, or the cost of refinancing at the end of the term.
There is a quieter sixth one: taking a 12 month term when the exit realistically needs 24. Renewing a private mortgage costs money. Getting the term right the first time is cheaper than a renewal you never planned for.
One more thing worth separating. If the point of the refinance is pulling capital out for a business rather than for the property, the file gets read differently, and our guide on using home equity to fund your business covers what lenders want to see.
Solid Capital is a Canadian alternative lender funding private mortgages and business financing for owners the big banks decline or under-serve. The difference is how the file gets read. Bank statements, rent rolls, property equity, and business context, rather than a credit score standing alone. Canadian advisors review every application personally. Start your application at solidcapital.ca. Five minutes, and no impact to your credit to apply.
A rental that pays for itself is an asset, whatever your last bank meeting suggested. Private financing is a bridge and not a destination, and it works when you know which side you are walking toward. Set the term to the plan. Write the exit down. Then borrow.
Frequently Asked Questions
Can you get a private mortgage on a rental property in Canada?
Yes. Private lenders and mortgage investment corporations regularly finance non-owner-occupied properties, including single family rentals, duplexes, and small multi-unit buildings. Approval rests mainly on the equity in the property, its location and marketability, and a realistic plan to refinance out at the end of the term.
Do private lenders apply the mortgage stress test?
No. The stress test comes from OSFI Guideline B-20, which binds federally regulated lenders such as banks. Private lenders and mortgage investment corporations are not federally regulated, so they qualify borrowers on their own criteria, usually starting with property equity rather than a qualifying rate.
How much equity do you need for a private mortgage on a rental property?
More than on a home you live in. Lenders set a loan to value limit that counts the existing mortgage and the new loan together, and on rentals that limit is commonly tighter than on a principal residence. The exact ceiling depends on the lender, the property type, and how quickly comparable properties sell in that market.
Can you refinance a rental property with tenants living in it?
Yes, and the tenancy usually helps. Lenders ask for signed leases and proof of rent received, because verified rent supports both the value of the property and your ability to carry payments. Units rented well below market are the exception, since they lower the income the building can show.
Does a private mortgage on a rental property show up on your credit report?
Many private lenders and mortgage investment corporations do not report to Equifax Canada or TransUnion the way banks do, so on-time payments may not build your credit. Applying through a lender who runs a soft pull has no impact on your score. Missed payments can still reach your report through collection or enforcement.
Is a five unit rental financed the same way as a fourplex?
No. One to four self-contained units fall under residential mortgage rules, assessed largely on your personal income and credit. At five units and above the property is treated commercially, and lenders underwrite the building's debt service coverage ratio rather than your personal ratios.
What happens at the end of a private mortgage term?
You refinance with an A or B lender, renew with the private lender, or sell. That is why the exit plan matters from day one. One to two years passes quickly, and whatever change makes a bank say yes, such as seasoned income or a finished renovation, has to be done before the term runs out.
