Private mortgage in Ontario: when it fits and how to plan the exit
TL;DR: A private mortgage in Ontario works best as a planned, short-term step. The exit decides how well it goes: how the loan gets paid out, by when, and what you do if the lender will not renew. Upfront costs are known in advance, so you can compare them in writing before you sign. For many homeowners and business owners, a private mortgage is a sensible tool when a bank or B-lender cannot approve the file in the time available, and a broker can show you whether yours is one of those files.
A private mortgage in Ontario is a loan secured against your home from a lender that is not a bank. The money usually comes from a mortgage investment corporation (a pooled fund of investors, often called a MIC) or from an individual investor. It can be a first mortgage, or a second mortgage that sits behind the one you already have. Our page on private mortgage brokers in Ontario explains how the product works. This guide covers the part people tend to ask about last, which is how it ends.
Most private mortgages run for a short term, typically one year, and the payments are usually interest-only, which means the balance stays the same until the loan is paid out (Canadian Press). That design puts the exit at the centre of the plan. In its 2023 consumer research, the Financial Services Regulatory Authority of Ontario (FSRA) found that around 60% of people with a private mortgage had no plan for moving back to a traditional mortgage (Canadian Mortgage Professional). Exit strategies also remain part of what FSRA examines under its current supervision plan (Canadian Mortgage Trends).
How do you plan the exit from a private mortgage?
Plan it on day one by answering three questions: what the loan is for, the point when you will no longer need it, and what will pay the lender out. Then write the answers as one sentence and check it at set points during the year.
The sentence needs to be specific. “I am borrowing to finish the renovation, I will no longer need the loan once the work is done and the home is reappraised in month seven, and a bank refinance will pay the lender out” works. “I will refinance when things improve” does not, because it has no purpose, no end point and no named source of repayment. Common exits include a sale, a move to a bank or B-lender once the income paperwork is in place, or a payout from a business receivable or other known source. A B-lender is an alternative lender that accepts files a bank will not, usually at a lower cost than a private lender.
Home value matters to every route, because lenders size a loan against what the property is worth today. That ratio is called loan-to-value, or LTV: the loan as a percentage of the home’s value. The Bank of Canada has estimated that falling prices could leave some Toronto-area homeowners unable to refinance at renewal (Canadian Mortgage Trends), so it is sensible to check your home’s value early instead of at maturity.
For a 12-month term, the plan looks like this:
| When | What to do |
|---|---|
| Day one | Write the exit sentence (purpose, end point, repayment source) and agree it with your broker. Keep the commitment letter and the fee statement together. |
| Month 3 | Gather the documents the exit route will need, such as tax returns, notices of assessment, an updated credit report, or a listing plan if you intend to sell. |
| Month 6 | Check progress. Has income, credit or the home’s value moved the way the plan assumed? If not, adjust the route now while there is time. |
| Month 9 | Start applications, about 90 days before maturity, so approval and legal work are not squeezed into the last few weeks. |
| Month 11 | Confirm the payout date and amount with the lender and your lawyer. |
| Maturity | The loan is paid out, or renewed in writing. |
Three routes cover most exits:
| Route | What it needs | What to price |
|---|---|---|
| Move to a bank or B-lender | Income and credit that fit that lender’s rules at the time you apply | Legal and appraisal costs, plus any fee that lender charges. These are usually lower than private fees, and your broker can quote them. |
| Sell the home | Enough equity after selling costs, and a closing date inside the term | Realtor commission, legal fees, and the lender’s payout statement |
| Renew or replace with a private lender | The current lender’s agreement, or a new lender willing to take the file | Renewal or placement fee, legal and appraisal costs |
If your exit is a bank or B-lender mortgage, our guide to mortgage renewal vs refinance in Ontario explains how those options differ.
Not sure which route fits your file? Talk to a broker and we will map it out with you.
What if your private lender will not renew, or offers less than you owe?
A private lender is not required to renew, so ask for the renewal terms in writing as early as the lender will give them, and plan a backup route at the same time.
Lenders have declined renewals in the past when home prices fell, because the loan then represents a larger share of the property’s value (The Globe and Mail). A lender may also offer to renew for less than the balance. If the balance is $60,000 and the lender will only re-advance $40,000 (lend again against the same mortgage), the gap is $20,000, and legal costs on any new loan come on top.
The gap can be handled in several ways:
| Option | When it fits | What to check |
|---|---|---|
| Cover the gap from other funds | You have savings or other equity available | Whether the funds are in hand before the payout date |
| Replace with another private lender | The home has enough equity and is easy to resell | Lender and broker fees apply again on the new loan |
| Move to a B-lender | Your income can be documented now | The total needs to sit inside what the B-lender will lend, and approval takes longer than a private replacement |
| Sell the home | Equity covers the payout and the selling costs | The closing date must land inside the term |
| Ask for a short extension in writing | A sale or refinance is already under way | The lender’s agreement, and whether a fee applies |
Having these documents ready shortens every route:
- Your current mortgage agreement and any renewal letter
- A payout statement from the current lender
- A recent property tax bill
- Your latest tax returns and notices of assessment
- A recent appraisal, if you have one
Start these conversations about 90 days before maturity. That gives you time to compare two or three routes instead of taking the first one that is available.
What does a private mortgage cost before interest?
The upfront cost of a private mortgage is mostly a lender fee and a broker fee, each charged as a percentage of the loan, plus legal and appraisal costs.
The Globe and Mail has reported typical charges of at least 2% to the lender and 1.5% or more to the broker (The Globe and Mail). For a $200,000 private mortgage with a 2% lender fee and a 1.5% broker fee, the numbers look like this:
| Item | Basis | Amount |
|---|---|---|
| Lender fee | 2% of the loan | $4,000 |
| Broker fee | 1.5% of the loan | $3,000 |
| Upfront fees | 3.5% of the loan | $7,000 |
| Funds you receive when fees come out of the advance | $200,000 less $7,000 | $193,000 |
| Legal and appraisal | Itemized estimate from your broker | Varies by file |
Percentages vary by lender and by file, and your broker should give you the actual figures in writing.
Interest is not in the table because it is set for your file and changes the total. Ask your broker for a written total cost of borrowing that adds the interest for the full term to the fees above. FSRA has paid attention to this: its 2024 review of private mortgage files found that just over a third had a correct annual percentage rate calculation (Canadian Mortgage Trends), so it is reasonable to check the figure line by line. If the lender may renew, also ask whether a renewal fee applies and how it compares with the fees on a new loan.
Want these numbers for your property? Talk to a broker for an itemized estimate.
When does a private mortgage fit?
A private mortgage fits when the home has solid equity, the need has an end date, and a bank or B-lender cannot approve the file in the time you have.
| Situation | Why a private mortgage can fit | Check first |
|---|---|---|
| A business owner whose income is strong but hard to show on paper | The decision rests on the property and its equity more than on income documents | Whether a B-lender can use your tax returns or bank statements. See our self-employed mortgage options. |
| A renovation, suite or build that needs more than a bank will lend against the home’s value | Private lenders can sometimes lend further against the appraised value | The combined loan, and when the finished work can be appraised. See renovation and construction financing and secondary suite financing. |
| A tax bill or other debts you want to combine into one payment | Funds can arrive quickly, and the payments simplify | Whether the private loan costs less than what you pay now, and when you could move to a cheaper loan. See debt consolidation. |
| A condition date or closing date that is close | Approval and funding are usually faster than at a bank | That the exit plan is in place before you commit |
| A first mortgage you want to keep, and you need extra funds | A second mortgage leaves the first one untouched | The cost of a second mortgage against the penalty and blended cost of changing the first. See home equity loans and our equity lending webinar. |
Three questions help you decide whether to price a private mortgage at all:
- Can your income be documented in a way a B-lender accepts? If yes, ask for that quote first.
- Does the total you need fit inside what a B-lender will lend against the home?
- Do you need the money in weeks rather than months?
If the answer to the first two is yes and the third is no, a B-lender is likely the lower-cost route. If credit is the main barrier, our guides on getting a mortgage with bad credit in Canada and securing a mortgage when your credit score is low cover steps that can open up more options. Your broker can put both quotes side by side.
Private mortgage in Ontario: pros and cons
A private mortgage trades higher cost and a short term for speed and flexibility, which makes it a good fit for a defined job and a poor fit as a long-term home loan.
| Advantage | Trade-off | What changes the answer |
|---|---|---|
| Approval leans on equity more than income paperwork | The total cost is higher, with fees and interest | Whether the job is short and the exit is dated |
| Funding is usually faster than at a bank | The term is short, often 12 months | Whether the exit route can be ready inside the term |
| More flexible on credit history, income type and unusual properties | Interest-only payments mean the balance does not shrink | Whether you can fund the full balance at the exit |
| A second mortgage can leave your first mortgage untouched | Renewal is not guaranteed | Whether a backup route is written down |
Check how the payments work in your agreement. An FSRA poll found that 54% of homeowners believed private mortgage payments cover both interest and principal, when many are interest-only (FSRA).
What to expect from a private mortgage broker
A licensed mortgage broker should give you written disclosure before you sign, an itemized list of fees and a written exit plan.
In Ontario, brokers who arrange private mortgages and investments need an additional level 2 licence from an FSRA-approved provider (Canadian Mortgage Trends). Questions worth asking any broker:
- Who pays the broker, and how much?
- What is every fee, itemized?
- Will the lender renew, and under what conditions, in writing?
- Is the term open or closed, meaning can you repay early?
- What is the written exit plan, and what is the backup route?
Ask your broker to show the bank and B-lender options next to the private one. Our private mortgage brokers in Ontario can walk through both for your file.
Private mortgage questions
Can I repay a private mortgage early?
Sometimes. Some private mortgages are open, which means you can repay at any time, and others are closed or charge a minimum amount of interest. Ask which applies before you sign, because it decides how quickly you can move to a bank or B-lender once you qualify.
Is interest-only normal on a private mortgage?
Yes, interest-only payments are common. The balance stays the same through the term, so the exit plan needs to cover the full loan amount, not a reduced one.
Does renewing a private mortgage cost the same as taking a new one?
Not necessarily. A lender may charge a renewal fee that is lower than the fees on a new loan, or may charge something similar. Ask for both figures in writing and compare them with the cost of moving to another lender.
How early should I plan the exit from a private mortgage?
From day one. Write the exit plan when the loan is arranged, check it at about the six-month mark, and begin applications around 90 days before maturity.
What happens if I cannot refinance when the term ends?
Your options are to renew with the current lender if it agrees, replace the loan with another private lender, sell, or cover the gap from other sources. The section above on renewals sets out how to compare them, and starting early keeps all of them open.
Talk through your exit plan with a broker
If you have a private mortgage coming due, or you are weighing one, we can lay out the options and costs side by side. Talk to a broker at MonsterMortgage.ca.
This article is general information. Fees, terms and availability vary by lender and by file.
