Private Mortgage Lending in Canada
What You Should Know
- Private mortgage lenders offer short-term mortgages as an alternative to the big banks.
- Private mortgages have higher interest rates and fees, but they’re easier and quicker to be approved for.
- Borrowers that might turn towards private lenders include those with bad credit, people that depend on foreign or irregular income sources, and newcomers to Canada without employment history.
- Ideally, private mortgages are used as a temporary solution while you improve your finances.
What are private mortgage lenders?
Private mortgage lenders are private corporations and individuals that lend out their own money. This includes Mortgage Investment Corporations, where money from private investors is pooled to fund syndicated mortgages. Private lenders do not accept deposits from the public, and so they are not federally or provincially regulated.
Private mortgages are typically shorter and come with higher interest rates and fees than those offered by traditional mortgage lenders. They are meant to be a temporary measure before transitioning back to typical mortgage lenders.
Private Mortgage Lenders Across Canada
Private mortgage lenders have continued to become an increasingly popular choice for homeowners and have maintained an important role in Canada’s housing market. Based on data from the CMHC, non-bank lenders originated $183.61 billion worth of mortgage loans in 2021.
While close to half of that were from credit unions, there were still 306,000 mortgage loans originated in 2021 by private lenders, worth close to $100 billion. This included mortgage finance companies (MFCs), mortgage investment entities (MIEs), and trust companies. There are many lenders where you can get a private mortgage from.
The table below lists a selection of private mortgage lenders in Canada and compares their private mortgage rates, maximum LTV ratio, if they allow interest-only payments, and if they have no minimum credit score requirement.
Why should I consider a private mortgage lender?
If you have a low or subprime credit score below 600, you will likely need a private lender. Mortgage lenders can use your credit score to look at your financial health, which can translate into being approved for a mortgage or not. Not missing any payments, having a low credit utilization rate, carrying a low (or zero) balance on credit cards, and having a long credit history will improve your credit score.
A minimum credit score of 600 is required for CMHC mortgage insurance. As most B Lenders deal with insured mortgages, not being able to qualify for a CMHC insured mortgage will exclude you from many B Lenders. Lenders may also require you to obtain mortgage insurance even if you make a down payment larger than 20%.
How can I check my credit score?
The two credit reporting agencies in Canada are Equifax and TransUnion. You can request your credit score and credit report from these agencies by mail or online for free. They also offer additional products and services for a fee, such as credit monitoring.
Equifax and TransUnion only report information within Canada, even though they operate in many countries including the US. Your credit history outside Canada may not be recognized depending on your financial institution. Newcomers and new immigrants to Canada may have trouble qualifying for a mortgage if they have a limited Canadian credit history.
Who can private mortgage lenders help?
Private mortgage lenders help fill the gap left by traditional lenders. Those with a limited Canadian credit history, such as new immigrants, may face additional hurdles when trying to get mortgage approval from banks. Mortgage brokers can also help those with difficulties getting approved for a mortgage. Other benefits can be found on our page about mortgage brokers vs banks. Meanwhile, private lenders can help the following borrowers.
New Immigrants
As Equifax and TransUnion only collect credit information within Canada, those with a foreign credit history may have to start from scratch. Some lenders may provide exceptions, and may even offer special newcomer mortgages to help new immigrants qualify for a mortgage. A hurdle that newcomers to Canada might face is having limited Canadian employment history. RBC requires a minimum 35% down payment for new immigrants to Canada without at least two years of Canadian employment history. RBC would also require a letter of reference from the mortgage applicant’s home bank.
Self-Employed/Irregular Income
Banks often require two years of employment history to prove that they have a steady source of income. Getting a self-employed mortgage presents challenges, such as if your income is not steady and fluctuates significantly. This especially impacts those whose income is based on commission or tips.
Foreign Income
Those with foreign income may also find it more difficult to qualify for a mortgage, especially if it is not easily verifiable or recognized. However, exceptions apply. In 2016, it was reported that BMO requires foreign clients to make a down payment of at least 35% to qualify for a mortgage. Scotiabank was found to require the verification of foreign income sources if a down payment of less than 50% was made.
Bad Credit Mortgages
Private mortgage lenders are an option for those with bad credit or with no credit history. A private mortgage lender might be more interested in how much equity you have in your home, rather than looking solely at your credit history.
Making regular and on-time payments on your private lender mortgage may help increase your credit score which may help you qualify for an A Lender or B Lender mortgage when it comes time to renew your mortgage.
Find out more about bad credit mortgagesHow do I find a private mortgage lender?
Most private mortgage lenders only work with mortgage brokers, either by regulation or to simplify sourcing. These mortgage brokers will help you find the best type of mortgage that is most suitable for your financial situation, negotiate with mortgage lenders, and submit documents on your behalf. Mortgage brokers may be compensated by the lender. If they receive a commission or any compensation, they must disclose the amount to their client.
Private Mortgage Lenders vs. Banks
Private mortgage lenders are an alternative to those denied by traditional A lenders, such as Canada’s Big Six Banks (RBC, TD, Scotiabank, BMO, CIBC, and National Bank), chartered banks, and credit unions. Banks are federally regulated in Canada, and are required to conduct a mortgage stress test to determine if you are able to afford your mortgage payments if interest rates rise.
Although not required, some provincially regulated financial institutions such as credit unions also conduct a mortgage stress-test. What happens if you fail a mortgage stress test? If you fail the mortgage stress test, that lender cannot lend to you even if you meet all of their other criteria, such as credit score. Private mortgage lenders are not required to conduct a mortgage stress test and are an option for you if you have failed it.
Comparing Bank vs. Private Mortgage Rates
| Bank Lenders | Private Lenders | |
|---|---|---|
| Average Interest Rate | 4% - 5.5% | 6.5% - 15% |
Private Mortgages as Temporary Funding
The short-term nature of private lender mortgages serve to bridge the gap for those with temporary financial problems. If you have recently lost your job, divorced, or met unexpected large expenses, a private lender can be a band-aid solution until your financial situation improves.
They can also act as bridge loans while you try to secure longer-term financing, such as financing the down payment on the purchase of a new home while you are awaiting the sale of your current home. It can also be used to temporarily fund renovations to raise a home’s selling price. The quick turnaround time of private lenders gives you access to rapid financing, with some lenders giving same day approvals.
Private Mortgage Lenders vs B Lenders
B Lenders, such as Mortgage Finance Companies (MFCs), are quasi-regulated lenders that are not directly regulated federally but indirectly follow regulations due to the nature of their business. Both private mortgage lenders and B Lenders are not required to conduct a mortgage stress test, and have looser lending requirements than A Lenders.
B Lenders, which are usually larger financial companies, mainly deal with insured mortgages rather than uninsured mortgages. This means that the loan-to-value (LTV) ratio would be higher than 80%, as in a down payment of less than 20% was made. CMHC mortgage insurance has specific requirements, such as a minimum credit score, purchase price limit, and amortization period limits. Private mortgage insurance providers, namely Canada Guaranty and Sagen, are alternatives to CMHC mortgage insurance.
Private Mortgages: 50% to 85% LTV
Private lenders mainly deal with uninsured mortgages. As uninsured mortgages mean a high level of risk, private lenders require borrowers to have an adequate amount of equity in their home. The CMHC found that LTV ratios for private mortgages typically ranged from 50% to 85%. Private lenders also mainly deal with first mortgages, which made up 78% of private lender mortgages, rather than second mortgages. This higher credit priority, along with a low LTV, protects private lenders in the event of mortgage default or a drop in Canadian house prices.
Private Lender Fees
Private mortgage lenders are not subject to any regulations in Canada, and so they can all set their own fees and lending conditions. One private lender might charge a certain fee, while another might have a much higher fee or different terms.
One private lender might charge 8% and no fees, while another might charge 6% which can turn into an effective annual rate of 9% after fees. Comparing lenders solely on the rate that they offer does not include all costs which can drastically affect the total cost of borrowing for your mortgage.
Fees beyond just the mortgage rate that can be charged include private lending fees, brokerage fees, and legal and appraisal fees. There may also be set-up fees or even administration fees. Fees also vary depending on your property type and location.
For example, Calvert Home Mortgage advertises private mortgages with rates as low as 8.49%. After accounting for their private mortgage lending fees, which ranges from 1.5% to 4.0% with a minimum fee of $1,500, the actual annual percentage rate (APR) that you’ll be paying can be above 10.00%!
Example Private Mortgage Fees
| Private Mortgage Lender | Lending Fees |
|---|---|
| Calvert Home Mortgage | 1.5% - 4% |
| Guardian Financing | 2% |
| Craigburn Capital | 2% - 10% |
Types of Private Mortgage Lenders
Rather than lending out money from customer deposits, private lenders use private capital. This can range from as big as investment corporations that use money from private mortgage investors, to as small as an individual that uses their own money to lend out.
- A Mortgage Investment Corporation (MIC) is the largest type of private mortgage lender. Atrium Mortgage Investment Corporation, one of the largest MICs in Canada, held $817 million in mortgages as of June 2022. Of these, 99% of their mortgages had an LTV of less than 75%, with an average interest rate of 8.90%. MICs pool together funds from investors to fund a variety of different mortgages, helping to spread out risk. Investors of MICs receive interest income.
- A Syndicated Mortgage is one that is funded by multiple private individuals. Syndicated mortgages are usually led by licensed mortgage brokers.
- Individuals can be a private lender if they lend their own money to another individual on an one-to-one basis.
Some private lenders may specialize in providing mortgages to those with bad credit. Other private lenders may focus on debt consolidation or on home equity loans. Some types of private mortgage lenders include:
- Private Mortgage Lenders for Bad Credit
- Second Mortgages and Third Mortgages
- Refinancing for Debt Consolidation or Renovations
- Home Equity Loans
- Commercial or Industrial Private Lenders
- Agricultural Private Lenders
Private Mortgage Frequently Asked Questions
How can private mortgage lenders lend special mortgages?
Since they are not subject to regulations, private mortgage lenders can offer much more flexibility in their products and their terms compared to A and B Lenders. The short duration of their mortgages, mainly under two years, allows private lenders to easily adjust mortgage interest rates. It also enables lenders to reassess the financial situation of the borrower much more regularly, ensuring that risk and rates are kept up to date.
Do private mortgage lenders let you borrow more?
You can often borrow more through a private mortgage lender, as banks have loan-to-value ratio limits. Banks will only allow you to borrow up to 80% of the value of your home. Some private lenders, such as Trillium Mortgage, allow you to borrow up to 90% of the value of your home. Other private lenders may even allow you to borrow up to a 95% loan-to-value (LTV) in some cases.
How long does it take to get a private mortgage?
Getting a private mortgage can take just a few days, rather than the weeks that it can take for a regular application process at a bank. Some private lenders may even offer same-day approvals.
Should I stay with a private mortgage lender?
Private lenders are a last-resort option for homeowners who are desperate to get a mortgage, and should only be a temporary stop-gap measure before returning back to A and B Lenders. You should always check to see how much mortgage you can afford.
Since the delinquency rate for mortgages at private lenders is seven-times higher than the delinquency rate at banks, private lender mortgage rates are much higher than those offered by A and B Lenders.
What happens to my mortgage if the private lender goes bankrupt?
In the event that your mortgage lender goes bankrupt, your mortgage will be sold to another lender. Your mortgage does not disappear; you will still have to continue to make payments to the new lender.
As the CMHC says, unregulated lenders “are not subject to federal rules about the amount of funds they must keep in reserve for credit losses arising from mortgage loans”. This might mean that private lenders can be more likely to go under if widespread mortgage defaults occur.
Private Mortgage Statistics
Private Mortgage Lender Regulations
Licensing requirements vary by province. In British Columbia, the Mortgage Brokers Act requires private lenders who lend more than ten mortgages a year to be licensed as a mortgage broker. Private lenders in Alberta are not regulated, but mortgage brokers that represent private mortgage lenders must be licensed by the Real Estate Council of Alberta.
Private Mortgage Interest Rates
Residential mortgage data from the Canada Mortgage and Housing Corporation (CMHC) shows that interest rates for mortgages from private lenders ranged from 6.5% to 15% in Q1 2021. Another 2019 report by the CMHC showed that in the fourth quarter of 2019, the average lending rate by the top 25 private MICs was 9.8%. In comparison, Canada’s chartered banks had rates ranging from 3.1% to 5.2% in 2019. You won’t be getting the best mortgage rates by getting a private mortgage.
Average Lending Rates for Private Mortgages
| Quarter | Average Lending Interest Rate |
|---|---|
| Q1 2020 | 9.1% |
| Q2 2020 | 9.3% |
| Q3 2020 | 9.2% |
| Q4 2020 | 8.9% |
| Q1 2021 | 8.9% |
Growth of Private Mortgages Across Canada
While just under half of MIC mortgages are located in Ontario, a sizable number is also found in British Columbia. Ontario is seeing the most short-term growth, while Alberta is seeing the largest individual decline.
Distribution of Private Mortgages in Canada
| Province | Q2 2019 | Q1 2020 | Q2 2020 | Q3 2020 | Q4 2020 | Q1 2021 |
|---|---|---|---|---|---|---|
| Ontario | 46.36% | 49.40% | 48.30% | 47.80% | 47.70% | 48.70% |
| British Columbia | 37.40% | 36.20% | 36.20% | 37.60% | 36.50% | 36.40% |
| Alberta | 9.45% | 7.80% | 8.30% | 7.10% | 7.60% | 8.10% |
| Québec | N/A | 2.10% | 2.10% | 2.90% | 3.70% | 3.80% |
| Other Provinces | 6.76% | 4.50% | 4.60% | 4.20% | 4.20% | 3.00% |
Source: CMHC Residential Mortgage Industry Dashboard – Fall 2020
Share of the Mortgage Market
In 2019, Private Lenders and Mortgage Investment Corporations (MICs) only made up 1% of all mortgages outstanding in Canada.
In Q1 2021, 48.7% of all private mortgages in Canada were in Ontario, a significant increase from 37.5% in Q4 2018. British Columbia’s share of private mortgages fell from 42.2% in Q4 2018 to 36.4% in Q1 2021. Combined, Ontario and British Columbia accounted for 85.1% of all private mortgages in Canada. Private lenders are generally concentrated in large urban centres, predominantly Toronto and Vancouver.
Average Private Mortgage Term
The CMHC in 2016 found that private mortgages typically lasted six to 24 months. Atrium, the fourth largest MIC in Canada, has an average mortgage term of 18 months. Their weighted average term remaining is 13 months.
Average Private Mortgage Size
CMHC’s Residential Mortgage Industry Report published in October 2021 showed that the average mortgage held at a Mortgage Investment Entity (MIE) was $260,120, and an average mortgage was $307,470 at a Mortgage Finance Company (MFC) or other insurance and trust companies. That’s both higher than the $258,410 average mortgage held at banks and $166,410 average mortgage at credit unions and caisses populaires.
Private Mortgage Delinquency Rates
Private mortgage delinquency rates at private lenders were at 1.73% in 2016 compared to only 0.24% at the banks, according to the CMHC. Delinquencies rose to 4.39% in 2019, with another 2.36% in foreclosures. Private mortgage delinquencies and foreclosures dropped slightly in 2021, falling to a delinquency rate of 2.53% and a foreclosure rate of 3.18% in Q1 2021.
List of Private Mortgage Lenders in Canada
Alpine Credits operates in British Columbia, Alberta, and Ontario. Calling themselves an alternative rather than a replacement to the Big Banks, Alpine Credits touts that homeowners get approved, no matter their credit, age, or income.
Fees can quickly add up. A mortgage with an interest rate at 5.75% translates into an annual percentage rate (APR) of 13.1%, while a second mortgage with Alpine Credits at 8.75% is equivalent to an APR of 15.6%.
Nuborrow is a mortgage brokerage that is licensed to operate in Ontario and British Columbia. Since being founded in 2014, they have processed over 15,000 mortgage applications and funded over $700 million in loans. For their average refinance, they claim to save borrowers an average of $16,800 each year. Besides mortgages, Nuborrow also offers home equity line of credit (HELOC) and home equity loans.
Prudent Financial Services requires at least 50% equity in your home, or for you to have other assets such as a paid-off luxury vehicle. Interest rates range from 10% to 19%.
Canada Lend offers mortgages for those with a credit score as low as 300 and offers second mortgages with an interest rate starting from 7.99% and private first mortgage starting from 6.39%. Canada Lend works with private mortgage lenders in Toronto and across the GTA.
As of October 2022, Clover Mortgage offered 1-year and 2-year private mortgages with rates as low as 6.99% and 7.99% on second mortgages.
Calvert Home Mortgage Investment Corporation offers a variety of products, from bridge financing to equity take out to house flipping. Interest rates range from 8.49% to 16.49% with additional fees of 1.5% to 4.0%. A minimum fee of $1,500 is charged. Terms are up to two years, and interest-payment only mortgages are available.
Guardian Financing serves the Greater Montreal Area, including the Island, South shore, North shore and West Island. Rates vary from 11% to 15%, with loan terms from 6 to 12 months and interest-only payments. Additional fees of 1% to 2.5% apply, with LTV up to 75%.
Capital Express offers structured financing solutions in the Greater Montreal Area, Québec/Lévis, Gatineau and Drummondville. Rates vary from 7.99% to 11.99% for 1st mortgages and 12% to 14.99% for second mortgages with loan terms of 3 to 24 months and interest-only payments. Additional fees of 2% (minimum of $3,000) and customary appraisal, notary, and title insurance fees apply.
Victoria Financial operates within Quebec, with offices in Montreal, Laval, and Quebec City. Loan terms range from 3 to 36 months, and a maximum LTV of 75%. No minimum credit score is required.
Trillium Mortgage offers bad credit second mortgages with a maximum LTV on first mortgages at 80% and on second mortgages at 90%.
Sun Mortgages offers private mortgages up to 75% LTV to those within certain cities and towns in Manitoba and Saskatchewan. No minimum credit score is required. Home appraisals are required.
Threshold Mortgage serves Winnipeg and the surrounding area. Loans are approved in 48 hours, and a sample rate given is 10.5%. Only 1 year terms are available.
Magnum Mortgage serves Alberta, with rates from 7.25% for first mortgages and 10.95% for second mortgages, depending on the amount of equity available.
Cliffton Capital operates within Quebec, namely Montreal, Hull-Gatineau, Quebec City, Trois Rivières, and Sherbrook. Terms are from 6 to 24 months, with only interest payments required.
TempBridge operates within Montreal and Laval, and offers short-term mortgages from 6 to 24 months. Additional fees range from 1% to 3%. Fees for construction financing ranges from 3% to 4%. Only interest payments are required.
Craigburn Capital operates within Ontario, Quebec, and the Maritimes, with offices in Halifax and Surrey. Rates for private mortgages vary, with interest-only payments available. There's also no minimum credit score to get a private mortgage with Craigburn Capital. Terms are usually 12 to 24 months, with a maximum LTV of 75%.
Private Lender Inc. operates across the country. Rates for first mortgages start from 6.99%, fees from 1%, and a maximum LTV of 80%. Fees for second mortgages start from 5%.
Graysbrook Capital serves the Maritime Provinces, namely Nova Scotia, Newfoundland, New Brunswick and Prince Edward Island with offices in Moncton and Halifax. Graysbrook Capital guarantees a response within 24 hours and funding within 1 week.
RateCo operates across the country. RateCo charges a 2% broker fee, with a minimum fee of $2,000.
Based in Brampton, Dhugga Mortgages serves select locations within Ontario and allows a maximum LTV of 75%. Interest-only payments are available, and no income is required.
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