A Brampton buyer had a firm offer on a $680,000 semi, $136,000 saved, and eleven days left on her financing condition. She’d been self-employed for about eighteen months, and the lender willing to approve her wanted two full Notices of Assessment. She had one. That’s the kind of file a private mortgage for purchase is built for. It isn’t a workaround for people who can’t afford a home. It’s a bridge for people whose paperwork doesn’t match their timeline.
This guide covers how private purchase financing works in Canada, what it costs at current rates, and when it’s the wrong tool. Sometimes a B-lender or a few more months of saving will serve you better.
- A private mortgage for a home purchase usually solves a timing or paperwork problem. It rarely fixes an affordability problem.
- Interest rates typically run 8% to 15%. Lender and broker fees often land between 0.5% and 3% each, depending on the file.
- Most private lenders want 15% to 20% of the price in your own money, with combined loan-to-value at about 75% to 80%.
- Terms are short, from six months to three years, and payments are usually interest-only. You need a written exit plan before you sign.
- If you have a few weeks to spare, ask about a B-lender first. It’s almost always cheaper.
How does a private mortgage for purchase work in Canada?
A private mortgage is money lent by an individual investor, a group of investors, or a Mortgage Investment Corporation (MIC) instead of a bank or credit union. In Ontario these lenders are still regulated — mortgage brokers arranging them need an FSRA license, same as any other mortgage — but the lender itself isn’t underwriting against a credit-score cutoff or a debt-service ratio table the way a bank does. They’re underwriting the property and the exit plan.
That single difference changes who gets approved. A bank looks at your T4s, your credit bureau file, and runs you through a stress test at a rate higher than you’ll actually pay. A private lender mostly wants to know two things: how much equity is really in this deal, and how does the loan get repaid or refinanced when the term ends.
Three structures show up most often in purchase transactions:
An individual or syndicate second mortgage covers the gap between what a bank will lend on the purchase and what the buyer actually needs — common when the down payment is thin or a bank will only approve a smaller first mortgage than the deal requires.
A Vendor Take-Back (VTB) mortgage has the seller act as the lender, carrying part of the purchase price directly. This shows up more in rural or commercial deals than typical residential ones.
A full private first mortgage replaces a bank mortgage entirely — the route for buyers a bank won’t touch at all: recent bankruptcy discharge, no verifiable Canadian income history, or a property type banks won’t finance.
Who actually needs this?
Self-employed buyers without two years of NOAs to show a bank. Newcomers to Canada with foreign income and no local credit history. Buyers mid-way through a consumer proposal. Investors buying a property that doesn’t fit a bank’s checklist — vacant land, a fixer-upper past the condition a bank will insure, a rural property outside serviced areas. And buyers in a competitive bid situation where an eight-week bank approval isn’t fast enough to compete.
If your situation involves CRA debt specifically rather than a purchase, that’s a related but different file — see our guide to getting a private mortgage with CRA debt for how lenders handle an existing lien differently than a straight purchase.
What it actually costs in 2026?
The Bank of Canada has held its policy rate at 2.25% since early 2026, putting prime at 4.45%. That’s the anchor for every rate below it.
| A-Lender (Bank) | B-Lender | Private Lender | |
|---|---|---|---|
| Typical purchase rate | 4.5%-5.5% | 5.5%-9% | 5.99%–6.79% |
| Max LTV on purchase | Up to 80% (95% insured) | Up to 80% | Typically 75-80%, sometimes higher combined with a first mortgage |
| Term length | 3-5 years, fully amortized | 1-3 years | 6 months-3 years, often interest-only |
| Approval time | 2-6 weeks | 1-3 weeks | Days to ~2 weeks |
| Underwrites on | Credit score, income, stress test | Income with more flexibility | Property equity and exit plan |
| Best fit | Clean credit, provable income, time to spare | Minor credit bruises, self-employed with some documentation | Time-sensitive close, no provable income, unconventional property |
Rates move with the lender’s own risk read on the file — a clean second mortgage on a Toronto property with 30% equity prices very differently than a rural first mortgage on a property with no comparable sales nearby. Treat the private range above as a starting point for the conversation, not a quote.
What are the fees on a private mortgage?
The interest rate gets all the attention, but fees are where borrowers get surprised.
Most private deals carry a lender fee, sometimes called a commitment or origination fee, and it’s commonly between 1% and 3% of the loan. On a private first or second mortgage, your broker will often charge a separate fee as well, because private lenders usually don’t pay brokers a commission the way banks do. Add the appraisal, plus legal fees for your lawyer and the lender’s, and the upfront bill on a $124,000 loan can easily reach $4,000 to $5,000.
A few things worth asking before you commit:
- Are the fees deducted from the amount advanced, or paid separately at closing? Fees taken off the top mean you receive less than the loan amount, so plan your closing funds around the net figure.
- Is there a minimum interest guarantee? Many private lenders set a floor, such as three months of interest, even if you pay the loan out early.
- What does it cost to renew or extend if your refinance runs late?
In Ontario, ask your broker for a written disclosure of everything they’re being paid before you sign. You can confirm a broker is licensed on the FSRA public registry. The Financial Consumer Agency of Canada also has plain-language material on comparing mortgage costs.
If you’re weighing a private second against other structures, our page on second mortgages in Canada walks through how that works.
How much down payment and equity do you need?
Most private lenders want to see at least 15% to 20% of the purchase price coming from you, not from borrowed money. On a $680,000 home, that’s somewhere between $102,000 and $136,000.
The second number lenders care about is combined loan-to-value, which is every mortgage on the property added together and divided by the appraised value. For residential purchases, it usually tops out around 75% to 80%. A strong file on a desirable urban property can sometimes stretch a little further. Rural, unusual or hard-to-sell properties tend to come in lower, and the rate goes up as the equity cushion shrinks.
That’s why the appraisal matters so much here. A bank leans on your income. A private lender leans on what the property is worth if they have to sell it, so the appraised value, not the price you agreed to pay, sets the real ceiling.
The down payment also has to be yours or a documented gift. Lenders will want to see where it came from, usually through 90 days of bank statements, a sale of another property, or a signed gift letter from a close family member. The CMHC home-buying pages explain how down payment rules work for insured mortgages, which is useful context for comparing options.
Can you get a private mortgage with low credit, as a newcomer, or if you’re self-employed?
These three groups make up most of the people who call us. The situations look different, but the underlying question is the same: can the lender get comfortable with the property and the exit plan?
Bad credit. A low score or a recent consumer proposal doesn’t automatically close the door, because private lenders weigh the property and your equity far more heavily than your bureau score. What they want to know is why the credit took a hit and whether it’s improving. Pull your own reports for free from Equifax Canada and TransUnion Canada before you talk to anyone, so nothing in the file surprises you. If credit is your main hurdle, our low credit score mortgage page and our guide for first-time buyers with low credit cover the options in more depth.
Newcomers. If you’ve been in Canada less than a few years, you may have solid income and savings but no Canadian credit history. Some banks run dedicated newcomer programs, so check those first. If they won’t fit your timeline or your documents, a private lender can step in for the first couple of years while you build a Canadian credit file, then you refinance.
Self-employed buyers. This is the Brampton story. Business owners often earn well but show less on paper after write-offs. A private mortgage can bridge the gap until you have the Notices of Assessment a conventional lender wants. If you have a little more time, a B-lender may suit you better, so ask your broker to price both.
One thing to be straight about: private lenders still care whether you can carry the interest payments. They’re not underwriting your income the way a bank would, but they won’t lend to a file where the monthly interest clearly doesn’t fit your finances. If you’re not sure where you stand, our guide to the equity loan with no income proof shows how that underwriting logic plays out.
What to try before a private mortgage
A private mortgage is a good tool for the right situation, but it’s rarely the first one to reach for. If you have even a few weeks of breathing room, run through these first.
A B-lender will usually be cheaper than a private lender and is built for borrowers with some credit bruises or less-than-perfect income documentation. It takes one to three weeks, which is the catch.
A co-signer or guarantor, typically a parent or relative with strong income, can get you approved at a bank. The trade-off is real. They’re on the hook for the debt, and their credit and borrowing capacity take the hit if payments are missed.
Your own savings may go further than you think. The First Home Savings Account lets eligible first-time buyers build tax-sheltered down payment money, and the Home Buyers’ Plan lets you withdraw from your RRSP toward a first home. Check the CRA pages for current limits.
A vendor take-back mortgage, where the seller carries part of the price, can work if the seller owns the property outright and wants the sale badly enough. It’s more common on rural and commercial deals.
You can also ask for more time. A longer closing or an extended financing condition sometimes costs nothing but a conversation through your agent, and it can turn a rushed private deal into a calm B-lender one.
And sometimes the best answer is to wait. If the numbers only work with a high-rate private loan and no clear exit, another six months of saving may cost you far less than the fees.
If the clock really is the problem, our bridge financing page and same-day funding guide cover the fastest routes.
The risks nobody mentions in the brochure
The risks to understand before you sign
Private mortgages work well when everything goes to plan. Here’s what happens when it doesn’t.
Payments are interest-only, so you’re not paying down the balance. At the end of the term you owe exactly what you started with, and the plan has to be a refinance or a sale. If your income, credit or paperwork hasn’t improved by then, you may face renewal fees, a higher rate, or a scramble to find another lender.
Private lenders also move faster than banks if payments stop. In Ontario, the usual remedy is power of sale, where the lender can sell the property to recover the debt after following the notice rules in the Mortgages Act. The timeline is measured in months, not years. Our page on power of sale mortgages explains how that process works for both sides.
Default interest rates and penalty clauses can be steep, and private lenders aren’t regulated like banks. Terms vary from one lender to the next, which makes the paperwork matter more.
So get the exit plan in writing. A realistic one names the lender or lender type you expect to refinance with, the date your paperwork will qualify, and a fallback if it doesn’t. And have your own real estate lawyer review everything. Our guide to legal advice for private mortgages lists what to look for.
What documents will a private lender ask for?
You’ll move faster if you have these ready before you call:
- A signed Agreement of Purchase and Sale, and the MLS listing if you have it
- Government photo ID
- Proof of your down payment: 90 days of bank statements, or a gift letter if part of it is a gift
- Your most recent Notice of Assessment and T1 General, if you’re self-employed, or recent pay stubs and a job letter if you’re employed
- A credit report you’ve pulled yourself, with a short explanation of anything negative
- For newcomers, your immigration documents and any foreign bank or income records
- A written exit plan, even a one-page summary
- Details on any existing mortgage if you own another property
The appraisal gets ordered after the file is submitted, so there’s no need to arrange it yourself.
Does this work the same way across Canada?
The basic structure is the same in every province: a short-term, interest-only loan secured against the property. Licensing and the rules around default and foreclosure differ.
Ontario brokers are licensed through FSRA. In British Columbia, the regulator is the BC Financial Services Authority. In Alberta, mortgage brokers fall under the Real Estate Council of Alberta, and in Quebec, the OACIQ oversees brokerage. Always confirm a broker’s licence with the regulator in your province before sharing documents.
Foreclosure rules are the biggest difference. Ontario’s power of sale process, for example, doesn’t work the same way as judicial foreclosure in other provinces. If you’re buying outside Ontario, ask your broker and lawyer how default is handled locally.
A worked example: a $680,000 semi in Brampton
Here’s how that Brampton file broke down. She’d left a salaried job about eighteen months earlier to start her own business, and the lender willing to approve her wanted two full Notices of Assessment. She had one. Her financing condition expired in eleven days.
She was putting $136,000 down, which is 20% of the $680,000 price, so she needed to borrow $544,000. On her declared self-employed income, the most a conventional lender would advance was $420,000, about 62% of the price. That left a $124,000 gap. She’d looked at B-lenders, but the ones that could close in eleven days wouldn’t go high enough.
A private lender filled the gap with a second mortgage at 9.5%, interest-only, on a 12-month term. With the first mortgage, she was borrowing 80% of the purchase price, right at the ceiling most private lenders will accept. Here’s what it cost:
| Cost | Typical range | In this example |
|---|---|---|
| Lender fee | 1% to 3% of the loan | $1,860 (1.5%) |
| Broker fee | 1% to 3% of the loan | $1,240 (1%) |
| Legal fees and disbursements | Often $1,000 to $2,500 | $1,200 |
| Appraisal | A few hundred dollars to about $600 | $500 |
| Upfront total | $4,800 | |
| Monthly interest on $124,000 at 9.5% | $981.67 |
Held for the full 12 months, the second mortgage would have cost about $16,580 all in ($4,800 in fees plus $11,780 in interest). She didn’t hold it that long. Once her second Notice of Assessment came through, she refinanced into a single conventional mortgage at 4.9%, and the private loan was paid out after nine months. That brought her total cost to roughly $13,600.
That’s a lot of money. It’s also less than losing the house and her deposit.
Note for you: these figures are illustrative. If the real file had different numbers, use the real ones. Don’t publish a case study that isn’t true to what happened.
Step by step: how a private purchase closes
- A broker reviews the deal — purchase price, down payment, and why the file doesn’t fit a bank (income type, timeline, property).
- An appraisal confirms the property’s value, which sets the real LTV a private lender will work from — this matters more here than almost any other underwriting factor.
- The broker matches the file to a lender whose risk appetite and rate actually fit — not every private lender takes every property type.
- Conditional approval, often within 24–72 hours once the appraisal is in.
- A real estate lawyer prepares the mortgage and closing documents — see our legal advice for private mortgages guide for what this step involves.
- Funding, typically 3–10 business days after conditional approval, timed to close with the purchase.
If your closing timeline is measured in days rather than weeks, our same-day funding guide covers how lenders compress that process further.
Private mortgage vs. traditional bank mortgage
| Private Mortgage for Purchase | Bank Mortgage | |
|---|---|---|
| Qualification | Property equity and exit plan | Credit score, income, debt-service ratios, stress test |
| Approval speed | Days to ~2 weeks | 2–6 weeks |
| Interest rate (2026) | 8–15% | 4.5–5.5% |
| Term | 6 months–3 years | 3–5 years, up to 30-year amortization |
| Property flexibility | Broad — including unconventional properties | Standard, insurable properties only |
| Fees | Higher lender and legal fees | Lower, often built into standard closing costs |
Where this goes wrong?
Private purchase financing solves a timing or documentation problem. It doesn’t solve an affordability problem. If the reason a bank declined you is that the numbers genuinely don’t work — the payment doesn’t fit your income even at a reasonable rate — a private mortgage just moves that problem six months down the road at a higher cost, and you’re back here again at renewal with less equity cushion than you started with.
The buyers who do well with this route go in with a real exit: a documented plan to refinance with a bank or B-lender once income history, credit, or paperwork catches up, or to sell within the term if that was always the plan. The buyers who struggle are the ones who treat the private term as the end of the process instead of the middle of it.
If you’re not sure which category you fall into, an equity loan with no income proof follows similar underwriting logic and is worth reading alongside this guide before you commit to a purchase structure.
Frequently asked questions
What's the interest rate on a private purchase mortgage in 2026?
Most private purchase mortgages currently price between 8% and 15%, depending on loan-to-value, the property type, and how much documentation the borrower can provide. A clean urban property with strong equity sits at the lower end; rural or unconventional properties push toward the higher end.
Can I use a private mortgage for my full down payment?
No — lenders want to see the down payment come from the buyer’s own resources or a documented gift, not borrowed funds layered on top of the private financing. A private second mortgage typically covers a gap in the financing structure, not the down payment itself.
How much equity do I need to qualify?
Most private lenders want the combined loan-to-value (first mortgage plus any private second) to stay at or below 75–80% of the appraised value. Above that, options narrow quickly and pricing rises.
Will a private mortgage hurt my credit?
Making payments on time doesn’t damage your credit, and most private lenders don’t report to the credit bureaus the way banks do — which cuts both ways: it won’t help you rebuild credit either. What matters for your credit is what you do with the rest of your finances during the term.
Can I get a private mortgage for a rural or unconventional property?
Often yes, which is one of the main reasons buyers use this route. Private lenders regularly finance vacant land, rural acreages, and fixer-uppers that fall outside what an insured bank mortgage will cover — though rates and required equity both tend to be higher on these files.
How long does a private purchase mortgage last?
Terms typically run six months to three years, and most are structured as interest-only. The expectation from day one should be refinancing out to a bank or B-lender, or selling, before the term ends.
Talk to a mortgage broker before your financing condition expires
If a lender has already said no and your closing date isn’t moving, the quickest way to know your options is a conversation about your specific file, not a generic rate quote. I’ve spent more than fifteen years placing private and alternative purchase mortgages in Toronto and the GTA, and most files can be reviewed within a day.
Book a free consultation or read about our alternative mortgage solutions first. If you’re in a real rush, our emergency house loan page covers the fastest options.
About the author: Faizal Garasia is a licensed mortgage broker (FSRA #10557, Dominion Lending Centres) with 15+ years placing private and alternative purchase mortgages across Toronto and the GTA. You can verify his license directly through the FSRA public registrant search. Read more about his background on the About page.
Sources: Bank of Canada – policy interest rate announcements; CMHC – housing market data; FSRA – mortgage broker licensing.