09/23/2025
Thinking About a Private Mortgage? Here’s the Real Story (No Sugar-Coating)
Private mortgages aren’t “bad” or “good” — they’re just tools. They exist to solve problems that banks can’t or won’t solve. But they’re also more expensive and carry more risk. If you’ve ever wondered why they work the way they do, let me break it down clearly:
1️⃣ They’re often SECOND MORTGAGES
A second mortgage just means it’s registered behind your first mortgage. If you already have a bank mortgage and need extra funds, a private lender will usually step in as a second position lender. This is riskier for them (because the bank gets paid first if the property is sold), so they charge more.
2️⃣ They’re UNINSURED
Private mortgages don’t qualify for CMHC, Sagen, or Canada Guaranty mortgage insurance. These insurers only work with approved lenders who follow strict underwriting rules (income verification, max loan-to-value, amortization periods). Private deals are too flexible and too case-by-case to fit those rules.
3️⃣ They’re used for EQUITY TAKE-OUT
The most common reason people get a private mortgage is to access their home’s equity. Maybe they need to consolidate debt, renovate, invest in a business, or get a bridge loan to close a purchase. Private lenders care more about the property’s value and equity than about your income or credit score — which is why they can fund quickly.
4️⃣ They have HIGHER INTEREST RATES
It’s normal to see rates from 11–14% on second mortgages and up to 9% on first mortgages. Why so high? Because the lender is taking on more risk (no insurance, second position, weaker borrower profiles) and they need to be paid for that risk. They also have to raise their money privately — their cost of funds is higher than a bank’s.
5️⃣ They’re considered HIGHER RISK
Borrowers usually turn to private lenders because they were turned down by banks or credit unions — maybe due to bruised credit, irregular income, high debt ratios, or the property itself being outside of lender guidelines. Lenders price that risk into the deal.
6️⃣ Payments are INTEREST-ONLY
Private lenders usually ask for interest-only payments. This keeps monthly payments lower, which helps borrowers manage cash flow. But at the end of the term, you still owe the same principal you borrowed — nothing has been paid down.
7️⃣ They’re SHORT TERM
Most private mortgages are 6 to 12 months long. This allows lenders to re-check the market, your equity, and your exit plan regularly. It also means you need a clear plan for how you’re going to pay it off — refinance, sell, or pay cash — before the term ends.
8️⃣ They’re for SMALLER LOAN AMOUNTS
Private lenders often deal with smaller loans compared to banks. This helps them spread risk across many deals instead of putting too much capital into one property.
9️⃣ They focus on the PROPERTY (Security-Based Lending)
Banks look closely at your income, credit, and debts. Private lenders focus more on the property’s value because, in a worst-case scenario, they can sell the property to recover their funds. That’s why appraisals and property condition matter so much in private lending.
🔟 They have HIGHER FEES
Private mortgages come with higher lender fees, broker fees, legal fees, and renewal fees compared to bank mortgages. These aren’t hidden — they just reflect the higher risk and the faster, more customized service you’re getting.
