Private lending means borrowing from an individual, a group of investors or a private mortgage company instead of a bank or credit union. It’s usually short-term and more expensive, and it’s usually used because a borrower doesn’t currently fit a traditional lender’s criteria, or needs money faster than a bank can move.
Used well, a private mortgage is a bridge: it solves a specific problem for a limited time while you work toward bank financing. Used badly, it can become an expensive trap. This guide covers when it tends to make sense and what to weigh first.
Where private lenders fit
The three tiers of mortgage lenders
| Prime (A) lenders | Alternative (B) lenders | Private lenders | |
|---|---|---|---|
| Who they are | Banks, credit unions, monoline lenders | Trust companies, some credit unions | Individuals, mortgage investment corporations (MICs), private firms |
| What they focus on | Income, credit and debt ratios | More flexible on income proof and credit | Mostly equity in the property and your exit plan |
| Typical term | 1 to 10 years | 1 to 3 years | 6 months to 2 years |
| Typical cost | Lowest rates, few fees | Higher rates, often a 1% fee | Highest rates plus lender and broker fees |
| Payments | Amortized | Amortized | Often interest-only |
When private lending tends to come up
Common situations
Credit or income issues
- Recent credit problems or a consumer proposal
- Income that’s real but hard to document
- New business without two years of tax returns
Timing problems
- Bridge financing between buying and selling
- A purchase that must close faster than a bank can approve
- Paying out an urgent debt or tax arrears
Property issues
- Properties banks won’t finance, such as some rural or unusual homes
- Renovation projects before they’re livable
- Land or partially completed builds
The most important question: what’s your exit?
Private lenders care most about how you’ll pay them back. So should you. Before signing, you should be able to describe a realistic, specific plan to get out of the private mortgage by the end of the term, usually one of these:
Common exit strategies
Refinance with a bank or B-lender
After repairing credit, documenting income or completing renovations.
Sell the property
Common for bridge loans and renovation or development projects.
Receive expected funds
For example, the sale of another property or a business payout.
What to weigh before choosing private
- Total cost, not just the rate: lender fees, broker fees, legal costs and renewal fees can add several percentage points to the true cost.
- Loan-to-value: private lenders usually lend up to about 65% to 80% of the property’s value, so you need meaningful equity.
- Term and renewal: ask what happens at the end of the term and what renewing would cost.
- Prepayment terms: some private mortgages require a minimum interest period, even if you pay them out early.
- Default terms: understand late fees and what the lender can do if payments are missed.
Questions to ask before you sign
What is the total cost over the full term?
Include every fee, not just the interest rate.
Is it interest-only or amortized?
Interest-only keeps payments low, but the balance doesn’t go down.
Can I pay it out early, and what would that cost?
Look for a minimum interest period or an early-payout fee.
What happens at maturity?
Ask about renewal fees and whether renewal is guaranteed.
Who is the lender, and is the deal arranged through a licensed brokerage?
Licensing rules vary by province. In Ontario, mortgage brokerages are licensed by FSRA.
Alternatives to check first
- An alternative (B) lender, which is usually cheaper than private.
- A co-signer or guarantor to strengthen a bank application.
- Waiting a few months to build credit or file another tax return.
- Selling or restructuring other debts to improve your ratios.
This article is general information, not financial or legal advice. Private mortgage terms vary widely. Last reviewed September 2026.