Private Mortgages in Ontario: When to Use Them

Private mortgages are short-term interest-only loans funded by individual investors or investment groups rather than traditional financial institutions. In the Ontario real estate market, these are primarily used for unique situations like extreme credit distress, emergency debt consolidation, or flipping a property. Because the lender is taking on significantly higher risk, these loans usually come with higher interest rates and upfront fees. A private mortgage should never be viewed as a long-term financing solution but rather as a tactical tool to achieve a specific goal. Most private terms are for 12 months, giving the borrower enough time to resolve their immediate financial hurdles and transition elsewhere.

Lenders in the private space focus almost exclusively on the Loan-to-Value ratio and the location of the property. In liquid markets like Toronto, Mississauga, or Kitchener, it is much easier to secure private financing than in rural areas where the property might take longer to sell. You can typically borrow up to 75 percent of the appraised value, though some lenders might push higher for exceptional properties. There are no strict income verification requirements or credit score minimums, which makes this an attractive option for those who are currently unbankable. The speed of funding is also a major benefit, with some private deals closing in as little as five business days.

Before you sign a commitment letter for a private mortgage, it is essential to have a documented exit strategy. Whether you plan to sell the home, refinance with a prime lender after credit repair, or receive an inheritance, the lender needs to know how they will be repaid. Without a clear exit plan, you risk being unable to renew the private loan at the end of the year, which could lead to expensive extension fees or legal action. I ensure all my clients understand the full cost of borrowing, including appraisal fees, legal costs, and lender points. Transparency is vital when dealing with high-cost capital to avoid a cycle of debt.

Consult with a mortgage broker who has deep connections in the private lending community to ensure you are getting the most competitive private terms available. Not all private lenders are the same, and some have much more favorable renewal options than others. We should look at your total debt load and determine if a second mortgage might be a more cost-effective solution than a full first mortgage refinance. My goal is to use private lending as a bridge to get you back to a stable financial position with a traditional bank. Reach out today to see if a short-term private mortgage is the right bridge for your current situation.