Private lending rates aren't affected by Bank of Canada rate announcements, as lenders set rates based on perceived risks of a potential borrower. A private mortgage can be a short-term option for borrowers unable to qualify for a traditional mortgage from federally regulated lenders such as banks or credit unions. 

Securing a mortgage privately requires a lot of planning and paperwork. You have to show proof of income with an employer’s letter or two years of tax returns if you’re self-employed, disclose your debts, and pass a stress test to prove that you can afford monthly payments both now and in the event interest rates rise. Lenders will also assess your creditworthiness: credit history, employment, and size of your down payment to determine how much they're willing to lend you and at what rate.

Despite completing all necessary pre-requisites, you could still not qualify for a mortgage at an A or B lender such as the banks or credit unions. If you still want to buy, or require to refinance your current home, a private mortgage might be a short-term option. 

What is a private mortgage?

A private mortgage is a transaction between a borrower and lender for the purpose of buying a house. Private mortgage lenders can be mortgage investment corporations, private companies, or a private mortgage from an individual or friend who has the capital and is willing to lend it to you, with interest.

Using a private lender can be an option when potential borrowers don’t qualify for a mortgage at the banks or credit unions, says Richelle Morgan, a mortgage broker with Kingston Mortgage Solutions. “But it allows people who don't fit into those traditional boxes, whether they're in business for themselves and don't claim a lot of income, or maybe they have a tight timeline.” Securing a loan from a private lender allows potential homeowners to still get a temporary mortgage while they work towards moving back into a more traditional lending scenario, says Morgan. 

Who might consider a private mortgage?

People with untraditional incomes are often the ones who opt for a private mortgage, in Morgan's view. “It's people who don't claim a lot on their taxes per se. Maybe their business structure is highly expensed, and they don't claim a lot of income,” she says. Other groups choosing private loans could be a buyer of a fixer-upper property, who needs a short-term solution, someone building a home, getting construction financing, or people with poor credit scenarios.

“But when you put somebody in a private mortgage, we have a strong exit strategy for them because a private mortgage should never be a long-term plan,” cautions Morgan.

According to the Financial Services Regulatory Authority (FSRA) of Ontario there were 410,200 mortgages valued at $249.9 billion in 2023. Of that total, 69,000 were private mortgages, equaling $33 billion. FSRA and other provincial regulators have oversight of licensed brokerages and monitor the private lending market. But neither federal nor provincial bodies publish private mortgage rate ranges. For the most part, the market remains opaque and individuals lending privately outside of a brokerage are largely unregulated in Canada.      

The most recent available information in 2025 shows Ontarians as the largest users in Canada of private mortgages followed by British Columbians.

While Morgan says a private mortgage is a last resort, it can be useful in specific circumstances:

• Income deficient: Self-employed borrowers who have irregular or unsteady income
• Poor or no credit history: Includes non-Canadian residents who don’t have credit history within Canada
• Emergency funding: Bridging option if you’ve bought a house before selling your previous home 
• Bankruptcy: Those with bankruptcy on their record, unable to secure a traditional mortgage
• Small homes that can’t be refinanced: Could include investment properties or tiny homes 

How much does a private mortgage cost?

With different criteria than traditional borrowing options, private mortgage rates can get to double digits. Current rates with traditional lenders sit between 3.95% for a variable rate to 4.49% for a five-year fixed rate. Non-traditional lenders can charge as much as 15%.

Morgan also says fees are added on top of the interest rate. “With a traditional mortgage, there may be an administration fee or your appraisal fee. Private mortgage lenders will always charge anywhere from 1 to 4% of your mortgage amount, just as a fee from the get go,” she says. That’s to cover potentially added risks in lending out money.

Furthermore, a lot of private mortgages tend to be interest-only payments during the length of the term. Borrowers can pay back the principal loan at the end of the term unlike a traditional mortgage that covers both the interest and principal in mortgage payments. 

Learn more: What is mortgage insurance in Canada?

Do you need to pass a stress test to qualify for a private mortgage?

Private lenders aren’t as concerned about borrowers passing a stress test to qualify for a mortgage. Instead, they look at other criteria before lending money. They’re more concerned with your property’s value and equity and how much you own versus what you still have owing on your property. That means when the Bank of Canada announces a change in the overnight interest rate, it doesn’t really affect private lenders, who often have fixed rates, says Morgan.

Instead, private lenders look at the loan-to-value (LTV) ratio. That’s a formula that looks at the difference between the size of the mortgage you’re hoping to get and the purchase price or appraised value of the property you’re renewing, purchasing, or refinancing. The lower the LTV, the better for lenders and the more favourable for borrowers to get approved.

For example: If you borrow 50% of your property’s value, that means you’ve either got 50% in equity in the property already or you’re putting down 50% of the property as a downpayment.

Read more: Does debt affect how much mortgage you qualify for in Canada?

If you do decide to go with a private lender, Morgan says to plan on an exit strategy sooner rather than later and find a licensed mortgage broker who can help. “Don't just go to one of those 1-800 website numbers because they can often be quite predatory,” she says. "I've seen people with 20% [interest rates on] mortgages from online companies.” 

Instead, she says to treat a private mortgage as an immediate, temporary step that could help put you in a better financial situation going forward.

Read next: How much down payment do I need for my mortgage?

Frequently Asked Questions (FAQs)

What is a private mortgage?

A private mortgage is a loan from a private lender to help you buy a home or refinance your existing mortgage. The non-traditional lender could be a mortgage investment corporation, a private company, or an individual willing to lend you money in exchange for interest. 

What is a loan-to-value ratio? 

The loan-to-value (LTV) ratio compares the amount you want to borrow with value of the property. Lenders use LTV to assess how much risk they’re taking on. The lower the LTV ratio, the more equity you have in the property, and the less risk you could pose for a lender.

How much does a private mortgage cost?

Private mortgages have higher interest rates than traditional mortgages, sometimes reaching 15%. Plus, there are fees that range from 1–4% of the amount borrowed. Many private mortgages are interest-only, meaning you pay interest during the term and have to repay the principal at the end of the borrowing period. 

How long should you have a private mortgage? 

Experts say to treat a private mortgage as a short-term solution for one to two years maximum, and to have an exit strategy before you sign any documents.