Private Mortgages in Canada — Entry Costs, MIC Structures, and a Disciplined Exit Strategy
Private mortgages and Mortgage Investment Corporation (MIC) lending occupy the highest-cost tier of Canadian residential credit — rates typically running 9–13% in 2025-2026 plus lender and broker fees of 2–4% of the loan amount. They are structurally designed as 12-month open or closed instruments, not long-term financing. Every borrower who enters private lending should have a written exit plan — a specific credit, income, or equity milestone that unlocks a B-lender or prime approval — before the first advance is drawn.
Who this is for
Borrowers with bruised credit, recent consumer proposals, or complex income who cannot qualify at a federally regulated lender and need a bridge solution — typically 12 to 24 months — before returning to prime or alternative lending.
- Private rate (interest-only)
- 10.99% (~$58,300/yr on $530k)
- Lender + broker fees at funding
- ~$15,900 (3% of $530k)
- Maximum LTV (most private lenders)
- 65–75% depending on market and credit tier
- B-lender eligibility window
- Typically 24 months post-proposal discharge; a small number of B-lenders will consider files at 12–18 months with strong compensating factors (20%+ equity, rebuilt bureau, documented income)
- All-in cost vs prime (12 months)
- ~$35,000–$42,000 premium over a 5.25% prime equivalent
Framework
What private lending actually is — and who provides it
Private mortgages in Canada are funded by individual investors, syndicates, or Mortgage Investment Corporations (MICs) — entities governed under Section 130.1 of the Income Tax Act that pool investor capital and lend against real property. MICs are not federally regulated lenders under OSFI's B-20 guideline, so they set their own underwriting standards. Provincial mortgage broker legislation (e.g., FSRA in Ontario, BCFSA in BC) governs the brokers who arrange these loans, not the lenders themselves. This regulatory gap is why private lenders can fund files that prime and B-lenders cannot — and why borrowers bear substantially more cost and risk.
Pricing anatomy — rate, fees, and true cost of capital
In the 2025-2026 rate environment (BoC overnight at ~2.75%, 5-year fixed at 5.0–5.5%), private mortgage rates run 9–13% for first mortgages and 12–18% for seconds, depending on LTV, property type, and credit severity. Fees are additive: a typical deal carries a 1–2% lender fee plus a 1–2% broker fee, both deducted from advance or paid at closing. Interest is almost always calculated on the full principal monthly, not on a declining balance — meaning interest-only structures are standard. On a $500,000 private first at 11%, the annual interest cost is $55,000. A borrower who rolls into a second 12-month term without an exit has spent $110,000 in interest alone, before fees.
The three legitimate entry reasons — and the red flags
Legitimate entry reasons:
- Credit event bridge — consumer proposal discharged <24 months, bankruptcy discharged <24 months (some B-lenders require 36 months post-bankruptcy). Private buys time to rebuild bureau.
- Income documentation gap — self-employed borrower mid-transition, income not yet reflected in two full T1 cycles.
- Time-sensitive purchase or refinance — estate settlement, divorce buyout, or construction completion where conventional timelines cannot be met.
Red flags that suggest private is the wrong tool: LTV already above 75%, no credible path to B or prime within 24 months, debt-service ratio that requires the private rate to be serviced from equity (not income), or a broker who cannot articulate the exit plan.
The 12-month exit plan — milestones that unlock the next tier
Exit planning is not aspirational — it is a set of dated, measurable milestones agreed at funding. The standard ladder:
Month 1–3: Establish or rebuild two active trade lines (secured card, car loan). Target Equifax/TransUnion scores above 600 for B-lender access, 680+ for prime.
Month 6: Confirm income documentation is on track — if self-employed, ensure the current tax year will produce a T1 that supports the target qualification income.
Month 10: Engage a broker to run a soft pre-qualification at B-lenders (Equitable Bank, Home Trust, Haventree, MCAP's B channel). Identify any remaining gap.
Month 11: If B-lender approval is in hand, instruct the private lender of non-renewal. Most private mortgages are open or carry a 30-day notice clause — confirm this in your commitment letter before signing.
LTV discipline and property risk
Private lenders underwrite primarily on collateral, not income. The practical ceiling is 75% LTV in major urban markets (Toronto, Vancouver, Calgary) and 65% in secondary markets or rural properties. A borrower who enters at 72% LTV has almost no equity buffer if the property declines 5–8% — a scenario that is not hypothetical in 2025-2026 given ongoing price correction risk in some Ontario and BC markets. If a forced renewal occurs at a higher LTV than the lender's threshold, the borrower may face a partial paydown demand at renewal — a liquidity crisis with no obvious solution. Stress-test your LTV against a 10% price decline before entering.
Regulatory and disclosure obligations borrowers should know
FSRA (Ontario) and BCFSA (BC) require that brokers arranging private mortgages provide a Mortgage Disclosure Statement and, for syndicated MIC investments, additional investor disclosure. As a borrower, you are entitled to the lender's full fee schedule, the effective annual rate (EAR) inclusive of all fees, and the prepayment terms in writing before signing. Under FSRA's 2024 guidance, brokers must document that the private mortgage is suitable given the borrower's circumstances — ask your broker to show you this suitability assessment. If they cannot produce one, that is a material compliance gap.
Key considerations
- Confirm the mortgage is registered as a first charge, not a collateral charge, unless you have a specific reason to accept collateral — collateral charges are harder to transfer to a new lender at exit and may require a full discharge and re-registration, adding $1,500–$3,000 in legal costs.
- Read the renewal clause carefully. Some private lenders auto-renew at a higher rate if you do not provide written notice of non-renewal 30 days before maturity. Missing this window can cost an additional month of interest at the private rate.
- Property insurance must name the private lender as loss payee. Some MICs require a specific endorsement — confirm this before closing or your insurance may be non-compliant and trigger a technical default.
- Second mortgages behind an existing prime first are available from some private lenders but carry rates of 12–18% and fees of 3–5%. The combined debt-service cost on a first-plus-second structure can exceed 50% of gross income — model this explicitly before proceeding.
- If the private mortgage is funding a purchase (not a refinance), the down payment must still meet the minimum required under the *Prohibition on the Purchase of Residential Property by Non-Canadians Act* and provincial rules — private funding does not exempt you from purchase eligibility requirements.
Common mistakes
- Entering private without a written exit plan — borrowers who treat private as a temporary measure without specific milestones routinely roll into a second and third term, spending $80,000–$120,000 in excess interest over 24–36 months.
- Accepting a closed private mortgage with a 3-month interest penalty — if your credit recovers faster than expected and a B-lender approves at month 8, a closed term forces you to pay the penalty or wait, eroding the savings from the lower rate.
- Ignoring the fee-inclusive effective rate — a 10.5% rate with 3% in fees on a 12-month term has an EAR closer to 13.5–14%. Comparing the stated rate to a B-lender's 7.5% understates the true cost differential.
- Using private financing to consolidate unsecured debt without addressing the spending behaviour that created the debt — the equity consumed by consolidation reduces the LTV buffer and leaves the borrower more exposed at renewal.
- Failing to disclose the private mortgage to a subsequent B-lender — the B-lender will see the registered charge on title and the payment history on bureau. Undisclosed liabilities are a decline trigger and can constitute misrepresentation.
- Choosing a private lender based solely on rate without verifying they are represented by a licensed mortgage broker — unlicensed private lending arrangements have no regulatory recourse if the lender acts improperly at renewal or discharge.
Action steps
- 01Before signing a private commitment, calculate the all-in cost: (rate × principal × term in months / 12) + all fees. Compare this to the cost of waiting 6 months and qualifying at a B-lender. If the difference is under $10,000, waiting is almost always the better outcome.
- 02Request the Mortgage Disclosure Statement and confirm the EAR, prepayment terms, renewal notice period, and whether the charge is standard or collateral — all in writing before the commitment expires.
- 03Open two new credit trade lines within 30 days of private funding and set them to auto-pay in full. This is the single highest-ROI action for accelerating bureau recovery.
- 04Book a B-lender pre-qualification at month 10 of your private term — not month 11. You need time to address any documentation gaps before the private term matures.
- 05If your exit path requires a specific T1 income level, speak to your accountant now about whether the current tax year's reported income will support that qualification. Adjusting your income reporting strategy mid-year is possible; adjusting it after filing is not.
- 06Engage a broker with documented access to at least three B-lenders and two private lenders — not a single-source arranger. The spread in private rates and terms across lenders is 150–300 bps, and fee structures vary materially.