Glossary
Private Mortgage Lending
Private mortgage lending is mortgage financing funded by private investors or mortgage investment corporations rather than banks, usually for short terms at higher rates and fees..
Private mortgage lending is mortgage financing supplied by private investors, syndicates, or mortgage investment corporations instead of a bank, credit union, or other institutional lender. Private mortgages are typically short term — often one or two years — and carry higher rates and fees than A-lender products, because the lender is taking on a borrower or a property that mainstream underwriting would decline.
Who uses private mortgage lending
Private funds are often arranged when a borrower needs speed, has income that is difficult to document, has bruised credit, or owns a property that does not fit standard guidelines — a home mid-renovation, a property with an unusual use, or a purchase that needs a short bridge. Private money is also common as a second mortgage behind an existing first mortgage, letting a borrower reach equity without breaking a low-rate first charge. Federal underwriting rules such as OSFI's Guideline B-20 and the mortgage stress test apply to federally regulated lenders, so private arrangements sit largely outside that framework.
Costs, terms, and structure
Expect a higher interest rate, a lender or brokerage fee quoted as a percentage of the loan amount, and sometimes a commitment fee. Private lenders generally advance less relative to value, so the loan-to-value ratio is typically lower than at a bank. Interest-only payments with a lump-sum repayment at maturity are common, and default insurance through CMHC or the other insurers is generally not available, so the lender prices that risk directly into the rate.
Why the exit plan matters most
A private mortgage is a short-term tool rather than a long-term home for a mortgage. Because the term is brief, the borrower needs a realistic plan to repay at maturity — refinancing with an alternative lender or an A-lender, selling the property, or paying down the balance. Without one, the borrower may face renewal pressure or, in the worst case, power of sale.
Frequently asked questions
Are private mortgages regulated in Canada?
Lenders that are not federally regulated deposit-taking institutions fall outside OSFI's Guideline B-20 residential underwriting rules. Provincial licensing rules for mortgage brokers and agents still apply, and the charge is registered on title like any other mortgage. You can confirm a broker's or lender's licensing status with your provincial regulator.
Is private mortgage lending the same as a B-lender?
No. B-lenders are institutional alternative lenders with their own published rate sheets and underwriting guidelines. Private lending is funded by individual investors, syndicates, or mortgage investment corporations, so terms are negotiated deal by deal and are usually shorter and more expensive than B-lender products.
What should I check before taking a private mortgage?
Confirm the total cost of borrowing, including the interest rate, lender or brokerage fee, any commitment fee, and the prepayment terms. Verify the exit strategy at maturity, the loan-to-value ratio, and whether the lender is properly licensed. Ask for the disclosure statement in writing before you sign.
Sources
Related terms
- A-Lender — An A-Lender is a prime mortgage lender, such as a bank, credit union, or monoline, that qualifies borrowers using standard documented rules.
- B-Lender — A B-Lender is an alternative Canadian mortgage lender that accepts weaker credit, irregular income, or unusual properties at a higher interest rate.
- Alternative Lending — Alternative lending is mortgage financing outside the prime market, for borrowers who do not meet standard bank qualifying criteria.
- Second Mortgage — A second mortgage is an additional loan registered behind an existing first mortgage, usually at a higher interest rate because it ranks second on title.
- Loan-to-Value Ratio (LTV) — The loan-to-value ratio (LTV) is the size of your mortgage expressed as a percentage of the property's appraised value or purchase price.