Short answer
Private mortgages are funded by individuals or mortgage investment corporations and are approved primarily on the property's equity rather than income or credit. They fund quickly, run for six months to two years, and carry higher rates plus lender and broker fees. They are a short-term tool with a planned exit, not a long-term mortgage.
Jump to Section
Private Lending Overview
If you're facing challenges getting approved by traditional lenders for a mortgage, it's not the end of the road. With the help of a licensed mortgage broker, your chances of being approved for a mortgage can be increased significantly through private lending.
Private lenders aren't connected to the banks or credit unions, which gives them the flexibility to create their own rules and regulations — generally approving mortgage applications on a case-by-case basis.
Reasons You May Need Private Lending
Traditional lenders must adhere to strict laws and regulations as set out by the government and financial overseers. Many of these regulations were enacted after the housing market crash of 2008, designed to better align borrowers with receiving mortgages they can afford.
The current strategy with traditional mortgages is to be more conservative with lending. This means there are certain times you may not qualify for a mortgage, even though you can financially afford it.
Common reasons borrowers turn to private lending:
Risks and Benefits of Private Lending
Private lenders are more likely to take on higher-risk borrowers, but they mitigate their own risk accordingly. Here are important factors to consider:
Risks to be aware of:
Benefits of private lending:
Private Lending as a Stepping Stone
Overall, private lending can be a great option for borrowers who are facing challenges with getting approved by traditional lenders. Private lending is often used as a stepping stone until borrowers find themselves in a financial position to transition to a traditional A-lender or B-lender.
A licensed mortgage broker can assess your unique borrowing situation, connect you with ethical private lenders, and create a plan to move you toward more favourable lending options over time.
Real-World Scenario
How Private Lending Saved a Home
The following is a fictional scenario that illustrates how this service can make a real difference.
Linda, 52 — Homeowner in Surrey, BC
The Situation
Linda had been going through a difficult divorce and fell behind on her mortgage payments. After three missed payments, her lender issued a demand letter threatening power of sale. Her home was worth $920,000 with a remaining mortgage of $410,000, meaning she had significant equity — but her credit score had dropped to 520 and she had no stable employment income while transitioning between careers.
The Challenge
With an active demand letter, bruised credit, and no current employment income, both traditional banks and B-lenders declined Linda's application. She had 45 days to arrange financing or risk losing her home — and the $510,000 in equity she'd built over 18 years. She was panicked and didn't know where to turn.
The Solution
I arranged a private first mortgage for $480,000 (approximately 52% loan-to-value) at a 1-year term. The private lender was comfortable with the low LTV and strong property value. The funds paid out her existing mortgage and demand, cleared the arrears, and gave Linda breathing room. I also created a 12-month action plan to rebuild her credit and secure employment so she could transition to a B-lender at renewal.
The Outcome
Linda kept her home and her equity. Within 10 months, she secured a full-time position and her credit score recovered to 620. At renewal, I moved her from the private mortgage to a B-lender at a significantly lower rate. She's now on track to return to an A-lender within the next two years. The private mortgage was the bridge that prevented her from losing everything.
*This is a fictional scenario for illustrative purposes only and does not represent a real client or actual mortgage application. Individual results and qualification criteria may vary.
Frequently Asked Questions
What are residential private lending rates?
Private lending rates are higher than traditional mortgages, typically ranging from 6-18% depending on the risk profile, property value, and loan-to-value ratio.
How long are private mortgage terms?
Private mortgages are typically 1-3 year terms, designed as short-term solutions to bridge the gap until you can transition to a traditional or alternative lender.
Is private lending regulated in Canada?
Private lending is not federally regulated, which is why working with a licensed mortgage broker is essential. A broker ensures you're connected with reputable private lenders and that the terms are fair and appropriate for your situation.
Can I move from a private lender to a bank later?
Yes, that's often the goal. Private lending is frequently used as a bridge while you rebuild credit, establish income history, or improve your financial situation to qualify with a traditional lender at renewal.
How much equity do I need for a private mortgage in BC or Alberta?
Most private lenders want the total of all mortgages to stay at or below 75-80% of the property's value in a major centre, and lower — often 65% — in smaller markets where a resale would take longer. Equity, not income, is the main thing being assessed, so a home with substantial equity can often be financed even when income documentation is thin.
How fast can a private mortgage close?
Often within a week to ten days once an appraisal is in hand, and occasionally faster on a straightforward file. Speed is one of the main reasons borrowers use private financing for a firm closing date, a tax arrears deadline, or a foreclosure redemption period.
What fees come with a private mortgage?
Expect a lender fee and a broker fee, commonly 1-3% each depending on the size and complexity of the deal, plus appraisal and legal costs. These are usually deducted from the advance rather than paid up front. Every fee should be disclosed in writing before you sign — a licensed broker is required to do this.
Will a private mortgage hurt my credit?
The mortgage itself is reported like any other and paying it on time helps. What harms credit is the situation that led there — arrears, collections or judgments. A well-structured private mortgage that clears those items and gives you twelve months to rebuild usually leaves your credit stronger than when you started.
Do private lenders require a stress test or income proof?
No stress test applies. Private lenders focus on the property, the equity position and a credible exit — how you will repay or refinance at the end of the term. Income documentation is still helpful, but it is not the deciding factor the way it is with a bank.
Have questions about residential private lending?
Call for a free, no-obligation consultation.
(604) 780-5173
