Private Mortgages in Ontario: Costs, Risks and the Exit Strategy

When private financing may be considered

Private mortgages are commonly considered when a borrower cannot meet institutional lender guidelines, a property needs work, a closing is urgent or the request is intended as short-term bridge financing. Private lenders often focus heavily on the property, available equity, marketability and the proposed exit.

This does not mean income and credit are irrelevant. The lender still needs confidence that payments can be made and that the mortgage can be repaid.

Why private mortgages cost more

Private mortgages generally carry higher interest rates and fees than traditional mortgages because the lender is accepting a different risk profile. The borrower may also pay legal, appraisal, brokerage or administration costs. Some mortgages require interest-only payments or prepaid interest.

Review a complete cost summary showing the net funds received, monthly payment, maturity balance and estimated cost for the expected term.

The exit strategy is the centre of the transaction

A private mortgage is usually meant to be temporary. Common exits include selling the property, completing renovations and refinancing, improving credit, documenting stronger income or receiving funds from another defined source.

The exit must be realistic within the mortgage term. It should account for time required to sell, complete construction, file taxes or qualify with the next lender. Renewal should not be assumed.

Questions to ask before proceeding

Ask what happens if the mortgage cannot be repaid at maturity, whether renewal is available, what fees apply, how interest is calculated and whether payments are required monthly. Confirm that the property value and loan amount leave enough room for the exit.

FSRA advises consumers that alternative and private mortgages are generally short-term solutions and may involve higher rates, fees and additional restrictions. Independent legal advice is an important part of understanding the commitment.