Yes. If you owe the Canada Revenue Agency and your bank has already said no, a private mortgage is usually still on the table — as long as there’s enough equity in your home. Private lenders don’t underwrite on your tax situation the way a bank does. They underwrite on the property. That single difference is why this route works for people banks turn away.
This guide covers what actually happens when CRA debt meets a mortgage application: why banks reject these files, how private lenders structure around a CRA lien, what it actually costs, and where the line is between “this solves the problem” and “this just delays it.”
A bank isn’t afraid of you owing money. It’s afraid of who you owe it to. CRA has legal powers no other creditor has — it can register a lien against your home, garnish wages without going to court first, and freeze bank accounts directly. For an “A” lender, an unresolved CRA balance is a red flag that shows up before they even get to your credit score.
Most banks and credit unions won’t fund a mortgage or refinance until your tax filings are current and any CRA debt is either paid or under a documented payment arrangement. This is especially common for self-employed borrowers and people rebuilding after a rough financial year — if that’s you, it’s worth reading how a no credit check private mortgage works alongside this option, since the two situations often overlap.
This is where the math gets serious. CRA interest compounds daily, and it isn’t something you can negotiate down the way you might with a credit card company. As of the 2025 quarterly rates, the prescribed rate on overdue individual tax debt has sat at 7–8% annually, recalculated every quarter — check the current figure directly on the CRA prescribed interest rates page. The debt doesn’t sit still while you figure out a plan; it grows every day it’s unpaid.
How Private Lenders Look at the Same File Differently
A private mortgage is money lent by an individual investor, a syndicate, or a Mortgage Investment Corporation (MIC) rather than a bank. Private lenders in Ontario are still provincially regulated, but their underwriting model asks a different question: not “does this borrower fit our credit box,” but “is there enough equity in this property to make the loan safe.
That shift matters for someone with CRA debt. A private lender can:
- Approve based primarily on your loan-to-value (LTV) ratio rather than your credit bureau file
- Pay the CRA balance directly from the mortgage proceeds at closing, which removes the lien and clears title
- Move in days rather than weeks — some files close through same-day funding once everything is in order
- Work with borrowers who are self-employed, recently bankrupt, or mid-consumer-proposal, none of which automatically disqualifies you the way it would at a bank
The tradeoff is cost. Private mortgage rates typically run 7–15%, and terms are short — usually six months to three years. A private mortgage is a bridge, and it’s worth understanding your end-of-term options before you sign anything, not after.
What Private Lenders Actually Check
Before approving a file with CRA debt attached, a private lender is generally looking at four things:
Equity position. Most want to see at least 15–25% equity remaining in the property after the new mortgage is registered. A detached home in the GTA has more flexibility than a rural or unconventional property.
Full disclosure of the CRA balance. Lenders would rather know the exact number upfront than discover it during the title search. Full disclosure lets them structure the mortgage to pay CRA directly at closing.
A real exit strategy. Since these are short-term loans, the lender wants to know what happens at the end of the term — refinancing with a bank once credit and tax status improve, selling the property, or another planned repayment source.
Some evidence of income, even if it’s not conventional. It doesn’t need to be a T4. If you don’t have provable income in the usual sense, an equity loan with no income proof follows a similar underwriting logic and is worth reading alongside this guide.
Private Lender vs. Bank vs. B-Lender: Where CRA Debt Fits
| A-Lender (Bank) | B-Lender | Private Lender | |
|---|---|---|---|
| How they underwrite | Credit score, provable income, stress test | More flexible, still wants documentation | Property equity and exit plan |
| CRA debt tolerance | Almost never approved with unresolved debt | Case-by-case, often needs a payment plan in place | Can pay CRA directly at closing |
| Typical rate | ~4–5.5% | ~5.5–9% | ~7–15% |
| Max LTV | Up to 80% | Up to 80% | Up to 75–85% (combined) |
| Approval speed | 2–6 weeks | 1–3 weeks | Days to ~2 weeks |
| Best fit | Clean file, time to spare | Minor credit bruises, self-employed income | Active CRA lien, urgent timeline, bank decline |
A Realistic Example: Clearing CRA Debt Through a Second Mortgage
Here’s how this typically plays out for a GTA homeowner. Say a property in Scarborough is worth $700,000 with an existing first mortgage of $400,000 — roughly $300,000 in equity. CRA has registered a lien for $45,000 in unpaid tax debt, and the bank has already declined a refinance because of it.
A private lender, working at an 80% combined LTV, could advance up to $560,000 across both mortgages. After the $400,000 first mortgage, that leaves roughly $160,000 in available room — enough to pay out the $45,000 CRA balance, cover legal and lender fees (typically $3,000–$6,000 combined for a second mortgage of this size), and leave a buffer.
At closing, the lawyer pays CRA directly from the mortgage proceeds, the lien gets discharged, and the homeowner is left with a clean title and a single new payment on the second mortgage instead of a compounding tax debt. The plan from there is usually to rebuild credit over 12–24 months and refinance into a bank or B-lender mortgage — see our guide on switching from a private to a bank mortgage for what that transition actually involves.
What It Actually Costs: The Interest Math
This is the part people skip past, and it’s the part that decides whether this is the right move. CRA interest compounds daily. A private mortgage doesn’t erase that cost — it replaces it with a different, usually lower, cost.
| Scenario | Balance | Rate | Annual Interest |
|---|---|---|---|
| CRA tax debt, left unpaid | $45,000 | ~7–8% (compounding daily) | ~$3,300 |
| Private second mortgage, interest-only | $45,000 | 10% | $4,500 |
| Bank refinance, once eligible | $45,000 (rolled into first mortgage) | ~4.5–5.5% amortized | ~$2,000–$2,500 |
At first glance the private mortgage looks like it costs more than doing nothing — but “doing nothing” isn’t actually an option once CRA moves to collection. The real comparison isn’t “pay 8% to CRA” vs. “pay 10% privately.” It’s “risk garnishment, a frozen account, or a forced sale” vs. “pay a known, fixed cost and keep control of the timeline.” For most homeowners facing active enforcement, that certainty is the entire point of going private, even at a higher stated rate.
If CRA Has Already Registered a Lien
A registered lien attaches directly to your property title. It reduces your usable equity and shows up the moment any lender pulls title. Most banks treat an active lien as an automatic decline, and if it’s left unresolved long enough, it can escalate toward a power of sale — which is a far more serious and costly outcome than refinancing early.
Private lenders can still work around an existing lien, and in most cases they’ll structure the mortgage so CRA is paid out of the proceeds at the exact moment of closing, with the lawyer handling the discharge as part of the same transaction. Once CRA confirms payment, the lien is removed from title and the property is clear again.
Alternatives Worth Ruling Out First
A private mortgage isn’t the only tool for CRA debt, and it isn’t automatically the cheapest one. Before committing, it’s worth ruling out:
CRA Payment Arrangements. If your balance is manageable and you have steady income, CRA will often set up a monthly payment plan directly. No new debt, no lender fees — but interest keeps compounding the whole time.
The Taxpayer Relief Program. In cases of genuine hardship — job loss, illness, a documented financial shock — CRA can sometimes waive penalties and interest under the taxpayer relief provisions. It won’t erase the principal, but it can meaningfully shrink what you owe.
A Consumer Proposal. Through a Licensed Insolvency Trustee, you can sometimes settle CRA debt for a percentage of the total owed. The federal government’s insolvency services page explains how this process works and how to find a licensed trustee. It resolves the debt for less, but it affects your credit rating for years and is recorded publicly — a different tradeoff than a mortgage, which you keep as long as you make payments.
A HELOC, if your credit and income still qualify you for one at a bank — materially cheaper than a private mortgage, but only available if CRA hasn’t already escalated to a lien and your file is otherwise clean.
Private Mortgage vs. Consumer Proposal: Which Actually Fits
This is the part people skip past, and it’s the part that decides whether this is the right move. CRA interest compounds daily. A private mortgage doesn’t erase that cost — it replaces it with a different, usually lower, cost.
| Private Mortgage | Consumer Proposal | |
|---|---|---|
| Amount repaid | Full balance, plus mortgage interest | Often 20-50% of total debt owed |
| Effect on credit | Debt shows as paid in full | R7 rating on file for years |
| What happens to your home | You keep it; new mortgage registered on title | You keep it, but the proposal is on public record |
| Typical duration | 12-24 months before refinancing out | Up to 5 years |
| Best for | Homeowners with real equity who want a fast, clean resolution | Homeowners with limited equity but stable income for a structured plan |
Step by Step: How the Process Actually Works
- A broker reviews your file — property value, existing mortgage balance, and the exact CRA amount owing, including any registered lien.
- An independent appraisal confirms the home’s current value, setting the real LTV the lender will work from.
- The broker matches you to a lender whose terms and risk appetite actually fit the file.
- Conditional approval, typically within 24–48 hours once the appraisal and documentation are in — the same process covered in our guide to quick mortgage pre-approval.
- A real estate lawyer prepares the mortgage and handles the CRA payout directly as part of closing — see our legal advice for private mortgages guide for what this step actually involves.
- Funding, usually 3–7 business days after conditional approval, with CRA paid and the lien cleared from title.
The Risk Side of This, Stated Plainly
A private mortgage buys time and stops the bleeding on CRA enforcement, but it isn’t free money and it isn’t a permanent fix. Rates are meaningfully higher than a bank mortgage, terms are short, and if the underlying cash-flow problem that created the CRA debt doesn’t get fixed, you can end up rolling from one short-term private mortgage into another instead of using the bridge the way it’s meant to be used. The exit strategy isn’t a formality; it’s the part of the plan that actually determines whether this was the right call.
Frequently Asked Questions
Can I get a mortgage if I owe money to CRA?
Through a bank, it’s difficult and often impossible until the debt is resolved or under a formal payment plan. Through a private mortgage solution, it’s a common and fairly routine scenario, provided there’s enough home equity to cover it.
Will a CRA lien stop me from refinancing?
With a bank, usually yes. Private lenders can still refinance around an active lien, typically by paying CRA directly from the mortgage proceeds at closing and discharging the lien the same day.
How do I remove a CRA lien from my property?
The lien comes off once the debt is paid in full. In a private mortgage transaction, the lawyer usually pays CRA directly out of the proceeds so the lien is discharged as part of closing.
Can I get a second mortgage specifically to pay off CRA debt?
Yes — this is one of the most common uses of a private second mortgage, especially when a homeowner already has a first mortgage in place and doesn’t want to disturb its rate or term.
Does CRA debt show up on my credit report directly?
Not on its own. But if it escalates to a lien, wage garnishment, or a court judgment, that enforcement action can affect your credit and your ability to borrow elsewhere.
How fast can a private mortgage actually close?
Conditional approval in 24–48 hours is typical, with full funding in roughly 3–7 business days once the appraisal is done and a lawyer has prepared the closing documents.
Are private mortgage rates always higher with CRA debt attached?
Generally yes, since an active lien adds a layer of complexity the lender has to work around. Rates in the 7–15% range are typical, with a lien often pushing you toward the higher end.
Can a private mortgage stop CRA from garnishing my wages?
Yes, if it closes before enforcement action is finalized. Once the CRA balance is paid from mortgage proceeds, the basis for garnishment or an account freeze goes away.
Talk to a Broker Before You Assume the Answer Is No
If CRA debt is sitting between you and financing, the fastest way to know where you actually stand is a direct conversation, not a guess. Book a free consultation or explore alternative mortgage solutions in Ontario to see what your equity position actually allows.
About the author: Faizal Garasia is a licensed mortgage broker (FSRA #10557, Dominion Lending Centres) with 15+ years of experience placing private and alternative mortgages across Toronto and the GTA, including files involving CRA debt, liens, and power of sale.