A bank decline does not automatically mean every mortgage option is over. A private mortgage may be considered when traditional lending guidelines do not fit the situation, but it is generally short-term financing with higher rates, fees and risks. The right review starts with suitability, total cost and a realistic exit strategy.
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What Is a Private Mortgage?
A private mortgage is financing provided by a private individual, company or mortgage investment corporation rather than a traditional bank or credit union. Private lenders may place more emphasis on the property’s value and equity, but they still assess the transaction and can impose specific conditions.
Private mortgage terms vary significantly. Approval is not guaranteed.
As a Mortgage Agent Level 2 in Ontario, Jatin Sood can review mortgage options from traditional, alternative and private lenders through his licensed brokerage. Jatin is not presenting himself as the lender; lender selection and approval depend on the borrower, property, available equity and each lender’s requirements.
When Might a Private Mortgage Be Reviewed?
- A recent bank or institutional-lender decline.
- Credit challenges.
- Self-employed or difficult-to-document income.
- A recent employment change.
- Short-term debt consolidation needs.
- Property condition or use that does not fit traditional guidelines.
- Time-sensitive financing or a temporary gap before another solution.
These circumstances do not automatically make a private mortgage suitable. A complete borrower and property review is still required. For income-documentation questions, start with the self-employed mortgage guide. Jatin also reviews mortgage options across the GTA.
Understand the Higher Cost and Risk
FSRA warns that private mortgages can involve higher interest rates and fees, shorter terms, additional conditions and interest-only payments. If payments are interest-only, the principal balance may not decrease during the term.
Before committing, ask for a clear breakdown of:
- Interest rate and payment schedule.
- Lender, brokerage, appraisal, legal and administrative fees.
- Whether fees are paid in cash or added to the mortgage balance.
- Default, late-payment and renewal charges.
- Prepayment terms and penalties.
- Conditions relating to property taxes, insurance and repairs.
- What happens if the mortgage cannot be repaid or refinanced at maturity.
Do not compare a private mortgage using the rate alone. Compare the total borrowing cost and the consequences if the exit plan does not work.
The Exit Strategy Is Part of the Mortgage
FSRA describes private mortgages as generally short-term solutions. Before closing, there should be a realistic plan for what happens at maturity.
- Improving credit and payment history.
- Stabilizing or documenting income.
- Reducing debts.
- Completing a property repair or sale.
- Refinancing into a lower-cost option when eligible.
The plan should be based on steps the borrower can reasonably achieve. It should also include a backup if the original plan changes.
Questions to Ask Before Signing
- Why is a private mortgage being recommended instead of a traditional or alternative lender?
- What is the total dollar cost for the full term?
- Will any fees be deducted from the advance or added to the balance?
- Will the payment reduce principal or cover interest only?
- What are the consequences of a late or missed payment?
- Is renewal available, and on what possible terms?
- What is the proposed exit strategy and backup plan?
- Have all material risks and conflicts been disclosed in writing?
- Should a lawyer review the commitment and mortgage documents?
In Ontario, a mortgage professional should explain material risks in writing and plain language. Take time to understand the commitment before signing.
A Clear Review Process
1. Understand the immediate financing need
Clarify the amount, purpose, property, deadline and why traditional financing may not currently fit.
2. Review income, debts, credit and equity
Private lenders may focus on property equity, but repayment capacity and suitability still matter.
3. Compare available structures and total cost
Review rates, fees, term, payment structure, conditions and risks together.
4. Build the exit and backup plans
Do not enter a short-term mortgage without a reasonable path for maturity.
5. Review written documents carefully
Ask questions, obtain independent legal advice where appropriate and do not sign until the obligations are understood.
Frequently Asked Questions
Is a private mortgage easier to qualify for?
Private lenders may use different criteria and may focus more on property value and equity, but each lender still decides whether to approve. Easier qualification in one area does not remove the cost, risk or documentation requirements.
Are private mortgages only for poor credit?
No. They may also be considered for time-sensitive financing, non-traditional income, property issues or short-term transition needs. Suitability depends on the complete situation.
How long is a private mortgage term?
Terms are often shorter than traditional mortgages and may be one or two years, but each commitment is different. The maturity date and exit strategy should be reviewed before signing.
Will my payments reduce the mortgage balance?
Not always. Some private mortgages require interest-only payments, which means the principal may remain unchanged during the term.
What if I cannot refinance at the end of the term?
There may be renewal costs, higher rates, a need to sell, or enforcement risk depending on the agreement. This is why a realistic exit strategy and backup plan are essential.
Private mortgage renewal fees and cash available at closing
Can fees apply again when a private mortgage renews?
Yes, renewal may involve further costs, and renewal itself should not be assumed. Ask for the proposed rate, term, lender and brokerage charges, legal costs and other applicable fees in writing. Ask which costs must be paid now and which would be added to the balance. There is no universal renewal-fee amount. FSRA specifically recommends asking whether renewal will be offered and what costs may apply at renewal.
Why can the cash I receive be less than the mortgage amount?
The gross loan amount is not necessarily the net cash available. Amounts used to repay existing obligations, fees and other closing deductions can reduce what you receive. Ask for an itemized estimate of the net advance, then reconcile it with the final closing statement.
Illustration only: a $100,000 advance, less $60,000 used to repay existing obligations and $5,000 in assumed closing deductions, leaves $35,000. These are invented round numbers to explain the calculation, not a quote, typical fee or lending offer. Future interest and any costs paid separately are not included in that subtraction.
What if the expected refinance is not available at maturity?
An exit plan is not a guaranteed refinance. Ask what happens if income, credit, property value or lender criteria do not support the planned next mortgage. Review the repayment deadline, possible renewal terms, backup options and consequences of default before committing. Get legal advice about the agreement where appropriate. Read FSRA’s private mortgage guidance.
Request a Confidential Review
If a bank has said no, start with a clear review of the situation rather than assuming a private mortgage is the only answer.
Request a Confidential Mortgage Review or call 647-569-8109.
Jatin Sood is a Mortgage Agent Level 2, Licence #M24002757, with The Mortgage Centre – Hard Money Approvals, Brokerage #12880, independently owned and operated.
Reviewed September 2, 2026 by Jatin Sood, Mortgage Agent Level 2, Licence #M24002757.
Sources
- FSRA: Private mortgages
- FSRA: Mortgage Agent Level 2 scope
- FSRA: Mortgage brokering consumer information
- FSRA: Signing a mortgage contract
Information is general and does not constitute financial, legal or tax advice. Mortgage availability, rates, fees, terms and qualification depend on the borrower, property, lender and applicable rules.