Home equity

Before borrowing against home equity, check your mortgage alternatives

If you are considering a private mortgage, first investigate traditional bank or credit-union options. Compare the full cost, payment flexibility and what happens when the term ends.

Flat Fee Mortgage Team

Before taking an alternative or private mortgage against your home, check whether a traditional mortgage from a bank or credit union is an option. Ontario’s Financial Services Regulatory Authority (FSRA) encourages borrowers to question why a private mortgage is being recommended instead of a traditional one, given its higher expense.[E2] A traditional mortgage would still mean borrowing against your home; this comparison covers mortgage options, not ways to avoid that borrowing.

If a private mortgage is being recommended

FSRA describes alternative or private mortgages as financing that borrowers may turn to when they cannot qualify for a traditional bank or credit-union mortgage.[E2] Traditional financing may not be available to you. Have the broker or agent explain which features make the private mortgage more suitable for your needs despite its higher expense, rather than simply being told it is available.[E2]

The plan for the end of the term matters, too. FSRA describes private mortgages as typically temporary financing for one or two years while a borrower works toward qualifying for a lower-cost option.[E2] That is not a promise that cheaper financing will become available. Before relying on that plan, identify what would need to change for you to qualify and what you would do if it did not.

Compare more than the payment

A useful comparison should cover both cost and flexibility:

  • Term and repayment period. The term is how long the specific mortgage contract lasts; amortization is the period over which regular payments repay the mortgage. FSRA recommends considering both, along with how payment amount and frequency affect total cost.[E1]
  • Costs to enter, leave or renew. Include setup, discharge and renewal fees, plus penalties for breaking or renegotiating the mortgage before the term ends. Find out how each is calculated.[E1]
  • Room to change plans. Examine prepayment privileges and whether the mortgage can be transferred to another property if you sell. Do not assume either feature is included.[E1]
  • Difficulty making payments. Check late-payment charges and any payment-relief options, such as using earlier prepayments to cover a payment. These are features to investigate, not benefits every mortgage provides.[E1]

For a private mortgage, FSRA also recommends understanding what happens after a late or missed payment and checking that the broker or agent is licensed through FSRA.[E2]

Before signing, request a side-by-side explanation of the mortgage options considered, their costs and the reason for the recommendation. If the private option depends on switching to lower-cost financing later, make that future qualification discussion part of the decision now.

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