Private mortgage lending has become one of the fastest-growing corners of Canada’s real estate finance market. Between 2019 and 2021, the value of mortgages funded by private and alternative lenders in Ontario climbed from roughly $13 billion to $22.4 billion, according to Ontario’s financial regulator. Growth has since cooled slightly — FSRA’s 2024 Private Residential Mortgage Lending in Ontario Report recorded a 1% dip in private mortgage volume that year as traditional lending ticked up — but private lenders still fund a meaningful share of Ontario mortgages and remain a core part of the market for borrowers banks turn away.
For investors, that activity represents an opportunity: fund the debt instead of the property, and earn interest income secured by real estate without becoming a landlord. This guide explains how private mortgage lending works in Canada, who the major lenders and structures are, what returns are realistic, the legal rules by province, and how to get started.
A private mortgage lender is an individual or company that lends money secured against real estate outside the traditional bank system. Private lenders range from a single individual funding one property, to large, professionally managed Mortgage Investment Corporations (MICs) that pool capital from hundreds of investors and deploy it across a diversified portfolio of mortgages.
Borrowers turn to private lenders when they don’t qualify with a bank — often due to Canada’s mortgage stress test, damaged credit, self-employment or non-traditional income, or the need to close quickly. In exchange for that flexibility, private mortgages typically carry higher interest rates than bank mortgages — which is exactly what makes them attractive on the investor side of the transaction. If you’re a borrower evaluating this option, our guide to legal considerations in private mortgages covers what to review before signing.
How Private Mortgage Lending Works in Canada
When an investor funds a private mortgage — either directly or through a MIC — they step into the legal position of the lender. The borrower makes monthly interest (and sometimes principal) payments to the investor instead of a bank. The loan is secured by a registered charge against the property, giving the lender the right to power of sale or foreclosure if the borrower defaults.
Private mortgages in Canada are typically:
- Short-term — 6 months to 2 years, often renewable
- Interest-only — principal repaid at term or on refinance/sale
- Conservatively secured — commonly a 65–80% loan-to-value ratio, giving the lender an equity cushion below their position
- Broker-arranged — a licensed mortgage broker or agent typically handles matching, documentation, and initial due diligence
Private Lenders vs. Mortgage Investment Corporations (MICs)
Most Canadian investors access private mortgage lending through a MIC rather than funding individual deals directly, because MICs offer diversification, professional underwriting, and — in many cases — registered account eligibility.
| Direct Private Lending | Mortgage Investment Corporation (MIC) | |
|---|---|---|
| How it works | You fund a specific mortgage directly | You buy shares in a company that pools capital across many mortgages |
| Diversification | Low — tied to one loan/property | High — spread across dozens or hundreds of loans |
| Typical minimum | Often $25,000+ | Varies by MIC; many accept smaller minimums |
| TFSA/RRSP eligible | No | Often yes, under the Income Tax Act |
| Management | Self-managed or broker-assisted | Professionally managed |
| Liquidity | Low — locked in for the loan term | Moderate — depends on the MIC's redemption policy |
| Typical target return | Deal-dependent | Roughly 6-10% annually, varies by MIC risk profile |
Publicly traded MICs like Firm Capital Mortgage Investment Corporation and Atrium Mortgage Investment Corporation disclose their portfolios, lending criteria, and historical returns, which makes them a useful reference point even if you ultimately invest through a private (non-traded) MIC or broker-arranged deal.
Who Are Canada's Private Mortgage Lenders?
The private lending landscape includes:
- Publicly traded MICs (e.g., Firm Capital, Atrium) — TSX-listed, disclose portfolios and financials publicly
- Private (non-traded) MICs — pool investor capital, often accessed through mortgage brokerages
- Individual/syndicated private lenders — fund specific deals directly, usually through a broker
- Mortgage brokerages that arrange and vet private lending opportunities for both borrowers and investors — see our Alternative Mortgage Solutions page for how this works with our team, and our full Services overview for related options
If you’re weighing private mortgage income against other private-lending strategies, our companion piece on returns from private mortgage investments breaks down expected yields in more depth.
The Legal Framework: Provincial Rules Investors Must Know
Private mortgage lending is regulated provincially in Canada, not federally, so the specific rules depend on where the property is located.
| Province | Governing Legislation | Key Point for Investors |
|---|---|---|
| Ontario | Mortgages Act, Land Titles Act | Sets out registration, discharge, and power-of-sale procedures; brokers/agents must be FSRA-licensed |
| British Columbia | Land Title Act | Governs registration and its own foreclosure process, distinct from Ontario's power of sale |
| All provinces | Criminal Code s.347 | Sets a federal criminal interest rate ceiling — lowered from 60% to 35% APR, effective January 1, 2025 |
Ontario also requires anyone arranging a mortgage to hold a valid brokerage or agent licence with the Financial Services Regulatory Authority of Ontario (FSRA) — worth confirming before working with any broker or lender.
Because enforcement and foreclosure procedures differ meaningfully by province, investors should always have a real estate lawyer review the mortgage commitment, assignment, promissory note, and discharge terms before funding any deal.
Realistic Returns: A Worked Example
Say an investor funds a $200,000 second mortgage at a 9% annual interest rate, interest-only, on a property valued at $700,000 with $500,000 already owed on the first mortgage — a combined loan-to-value of roughly 71%, a reasonably conservative equity cushion.
| Item | Amount |
|---|---|
| Investment | $200,000 |
| Interest rate | 9% annually |
| Annual interest income | $18,000 |
| Monthly income | $1,500 |
| Property value | $700,000 |
| Combined loan-to-value | ~71% |
The investor isn’t responsible for property taxes, maintenance, or tenant issues. If the borrower defaults, the investor’s position is protected by the equity cushion below the first mortgage — though recovery still requires legal proceedings and time, and isn’t guaranteed. This example is illustrative only; actual rates, terms, and risk vary significantly by deal, lender, and province.
Risks of Private Mortgage Investing
- Default risk — borrowers in private mortgages are often there because they didn’t qualify with a bank, which can mean elevated default risk relative to conventional lending
- Limited liquidity — capital is generally tied up for the full loan term
- Legal and enforcement costs — foreclosure or power of sale takes time and money, and procedures vary by province
- Concentration risk — lending directly to a single borrower on one property carries more risk than a diversified MIC portfolio
How to Start Investing in Private Mortgages in Canada
- Decide your structure — direct lending vs. a MIC, based on your capital, risk tolerance, and need for diversification
- Work with a licensed mortgage broker or agent who arranges private deals or represents a MIC — see our Alternative Mortgage Solutions page
- Get independent legal review — a real estate lawyer should review the mortgage commitment, promissory note, and registered charge before you fund anything
- Evaluate the deal — loan-to-value ratio, the borrower’s exit strategy, and the underlying property
- Decide how payments will be serviced — collected directly, or through a third-party mortgage servicing company
Tax Treatment of Private Mortgage Income
Interest income from private mortgage lending is fully taxable at your marginal rate in Canada — unlike capital gains, which benefit from a 50% inclusion rate. It must be reported annually on your T1 return. MIC dividends may be taxed differently depending on the MIC’s structure and whether the shares are held inside a registered account like a TFSA or RRSP. Because tax treatment depends on your specific structure and holdings, consult a Canadian tax professional before finalizing an investment.
Common Mistakes to Avoid
- Not verifying the registered lien position before funding
- Skipping independent legal review of the mortgage documents
- Underestimating the time and cost of enforcement if a borrower defaults
- Concentrating capital in a single deal instead of diversifying through a MIC
- Investing in a province or property type you haven’t researched
Written by Faizal Garasia 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 referenced in this guide:
- Financial Services Regulatory Authority of Ontario (FSRA), Private Residential Mortgage Lending in Ontario Report 2024
- Government of Ontario, Mortgages Act, R.S.O. 1990
- Government of British Columbia, Land Title Act
- Government of Canada, Criminal Code, Section 347 — Criminal Rate of Interest
- FSRA, fsrao.ca — mortgage brokerage licensing registry