Private Mortgages Explained: When They Make Sense (and How to Get Back Out)

Private mortgages have a reputation problem. People hear “private lender” and think last resort, desperation, sketchy guys with briefcases. The reality? Private lending is a legitimate, regulated corner of Canadian mortgage financing — and used correctly, it’s a powerful tool. Used incorrectly, it’s an expensive mistake.

My job is making sure my clients only ever use it correctly. Here’s the honest breakdown.

What a private mortgage actually is

A private mortgage comes from an individual investor, a group of investors, or a Mortgage Investment Corporation (MIC) instead of a bank. Private lenders care mainly about one thing: the property and your equity in it. Income and credit matter far less — some barely look.

That’s why privates can close in days, not weeks, and say yes to files no institution will touch.

When a private mortgage is the smart play

• Bridge situations — you bought before selling, and need short-term funds to close
• Stopping the bleeding — consolidating brutal high-interest debt or a CRA bill fast, then refinancing properly
• Credit rebuild in progress — you need 6–12 months before a B or A lender will take the file
• Unique properties — rural, mixed-use, non-conforming — that institutional lenders won’t finance
• Time-critical closings — financing fell through a week before closing and your deposit is on the line

Notice a pattern? Every single one is short-term. That’s the whole philosophy.

What it really costs

No sugar-coating: private money is the most expensive mortgage money in Canada. Expect roughly 8–12%+ interest (often interest-only payments), lender and broker fees typically in the 2–4% range, and 1-year terms. Most privates lend up to 75–80% of the property value in urban areas — it’s equity-based lending, so the more equity, the better the terms.

Interest-only payments keep the monthly cost manageable while you fix whatever kept you out of cheaper money. But the total cost means every month you stay in a private is a month you should be working the exit.

The exit plan is the whole game

I won’t place a client in a private mortgage without a written answer to one question: “How do we get out?” Usually it’s one of:

1. Refinance to a B lender once credit heals or income documentation catches up — see What Is a B Lender?
2. Sale of a property — the bridge scenario, with a firm closing date
3. Time-boxed cleanup — taxes filed, proposal completed, judgments cleared, then institutional refinance

If there’s no credible exit within 12–24 months, a private mortgage probably isn’t the right tool — and I’ll tell you that to your face.

Red flags to avoid

Not all private lending is created equal. Watch for: renewal fees that repeat every year (some lenders make their real money on serial renewals), vague fee disclosure, and anyone rushing you to sign without independent legal advice. A good broker’s job is to keep you away from all three.

The bottom line

A private mortgage is a power tool: incredibly effective for the right job, dangerous when used casually. If you’re in a tight spot — bridge, credit, CRA, deadline — let’s see whether it’s truly the best move, price the full cost, and build the exit before we start.

Tyler Salmon — Mortgage Agent Level 2 (Ontario & Alberta), License #M21003803. This post is general info, not advice — every file is different, so let’s talk yours through.

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