What is a private mortgage?
A private mortgage is a loan secured against real estate and funded by an individual, group of investors, or a private lending business rather than a bank or traditional credit union. In Ontario, these loans are commonly used when a borrower does not qualify for conventional financing, needs short-term financing, or has a property or income situation that requires more flexible underwriting.
Private mortgages are not automatically easier or safer than other mortgage options. They can have shorter terms, higher borrowing costs, and stricter repayment expectations. Your property may be at risk if you cannot meet the mortgage obligations.
Places to look for a private mortgage in Ontario
A licensed mortgage broker or agent
Many borrowers begin with an Ontario mortgage broker or agent. A broker may have relationships with private lenders and can help you compare possible mortgage structures, including first and second mortgages.
Ask whether the person and business are authorized to arrange mortgages in Ontario, what lender options they can access, and how they are compensated. You can verify registration information through the Financial Services Regulatory Authority of Ontario (FSRA).
Private mortgage lenders and mortgage investment businesses
Some companies focus on asset-based or private real estate lending. Their lending decisions may place substantial weight on the property, its location, available equity, and the proposed exit plan—such as refinancing, selling, or paying out the loan from another source.
Review the lender carefully. Confirm who the actual lender is, whether the mortgage will be registered on title, and whether any party is acting as a broker, administrator, or investor representative.
Individual investors
A private mortgage can also be funded directly by an individual investor, including someone introduced through a professional network. These arrangements still require proper documentation, independent legal advice where appropriate, and registration of the mortgage through a real estate lawyer.
Be cautious with informal arrangements. A verbal promise, an unclear term sheet, or a request to sign documents without legal review can create serious problems.
Your existing mortgage professional or real estate lawyer
If you already work with a mortgage professional or lawyer, they may help you understand whether private financing is appropriate and what steps are needed to complete a transaction properly. A lawyer can explain the mortgage documents, title registration, priority of charges, and consequences of default.
What private lenders commonly consider
Requirements vary, but private lenders often assess:
- The property's estimated value and condition
- The amount of existing mortgages, liens, or other registered claims
- The loan-to-value position and mortgage priority
- The property's location and marketability
- Your plan to repay, refinance, or sell at the end of the term
- Your credit history, income documentation, and overall financial situation
A private lender may still request proof of income, bank statements, tax documents, or details about debts. Provide accurate information and ask what documentation is required before moving forward.
Compare the full cost, not just the loan amount
Before accepting a private mortgage, request written disclosure of the complete arrangement. Review the interest rate, term, payment amount and frequency, repayment conditions, prepayment rules, renewal terms, default provisions, and all charges that may apply.
Also ask whether the loan is interest-only or includes principal repayment. An interest-only payment may be lower during the term, but the principal balance generally remains due at maturity.
A short-term private mortgage often depends on a realistic exit plan. If your plan is to refinance later, remember that future qualification depends on lender requirements, your finances, the property's value, and market conditions at that time.
Understand first and second private mortgages
A private mortgage may be registered in first position or behind an existing mortgage in second position. A second mortgage usually carries more risk for the lender because the first mortgage is paid first if the property is sold following enforcement. That risk can affect the loan terms.
Check the priority of every charge on title. You should also understand whether your existing mortgage allows additional financing and whether a new mortgage could trigger a requirement for consent or repayment.
Red flags to watch for
Take extra care if you encounter pressure to sign immediately, unclear documents, promises that qualification does not matter, or requests to hide information from another lender. Avoid anyone who asks you to misrepresent your income, occupancy, debts, or property details.
Other concerns include unexplained charges, blank documents, funds sent to a personal account instead of through the expected legal process, and no opportunity to obtain legal advice. Do not rely on an assumed future refinance or sale without considering what happens if it does not occur.
Steps to take before you proceed
- Obtain a current estimate of your property's value and identify all debts secured against it.
- Request written mortgage terms and a clear breakdown of all costs and obligations.
- Compare private financing with other possible options, such as a conventional refinance, credit union financing, or discussing payment arrangements with creditors where applicable.
- Have an Ontario real estate lawyer review the commitment and mortgage documents before closing.
- Verify the registration status of mortgage professionals through FSRA and confirm current Ontario disclosure requirements with an authoritative source.
- Make a realistic plan for repayment at the end of the term, including a contingency if refinancing or a sale takes longer than expected.
The bottom line
In Ontario, private mortgages can be arranged through licensed mortgage professionals, private lenders, investor networks, and direct investors. They may be useful in certain short-term or non-standard situations, but they are secured by your home or other real estate and can involve significant costs and risk. Take time to verify the parties involved, understand every term, and obtain legal review before committing.