Private mortgages have a reputation for being a last resort, but for the right borrower in the right situation, they're a powerful financial tool. Here's everything you need to know.
What Is a Private Mortgage?
A private mortgage is a loan from a private individual or company (not a bank or credit union) secured against real estate. Private lenders focus primarily on the property's value rather than the borrower's credit score or income.
When Does a Private Mortgage Make Sense?
Bridge financing: You've bought a new home but haven't sold your old one yet. A private mortgage bridges the gap.
Credit recovery: You've had a bankruptcy or consumer proposal and need 1-2 years to rebuild credit before qualifying for a bank mortgage.
Self-employed: Your income is difficult to document and traditional lenders won't approve you.
Property issues: The property has issues (non-conforming use, environmental concerns) that traditional lenders won't touch.
Private Mortgage Costs
Interest rates: 7-12% depending on risk
Lender fees: 1-3% of the mortgage amount
Broker fees: 1-2% of the mortgage amount
These costs are higher than traditional mortgages, but for short-term situations, the total cost is often manageable.
The Exit Strategy
Always have a clear exit strategy before taking a private mortgage. Typically: use the 1-2 year term to rebuild credit, increase income documentation, or sell the property, then refinance into a traditional mortgage.
Need a private mortgage? Call Sam at 647-784-7924 — he has access to reputable private lenders across Ontario.