What Are Private and B-Lenders?
In Canada's mortgage landscape, lenders fall into three tiers. A-lenders are the big banks and credit unions offering the best rates to borrowers with strong credit and provable income. B-lenders are regulated alternative lenders who serve borrowers who don't quite fit A-lender criteria — perhaps due to self-employment, credit blemishes, or non-traditional income. Private lenders are individuals or companies that lend their own capital, secured against real estate, with the most flexible qualification criteria but higher costs. Understanding this hierarchy is essential for Ontario borrowers who've been turned away by their bank.
When Private Lending Makes Sense
Private mortgages aren't for everyone, but they serve a genuine need in specific situations: you need to close quickly and traditional lenders can't meet the timeline, you're self-employed with complicated income documentation, you have recent credit issues but strong equity, you're purchasing a unique property that A-lenders won't finance, or you need a short-term bridge loan. In Ontario's competitive real estate market, where bidding wars can require fast, firm offers, private financing can be the difference between winning and losing a property.
The True Cost of Private Mortgages in Ontario
Private mortgage rates in Ontario typically range from 7% to 12%, with lender fees of 1–3% of the loan amount. You'll also pay legal fees for both your lawyer and the lender's lawyer ($2,000–$4,000 total), plus an appraisal fee. On a $400,000 private mortgage at 9% interest-only, your monthly payment would be approximately $3,000. These costs are significantly higher than conventional mortgages, which is why private lending should always be viewed as a temporary solution — a bridge to better financing, not a long-term strategy.
How to Use Private Lending as a Stepping Stone
The smartest way to use private financing is with a clear exit strategy. For example, if credit issues are preventing you from qualifying at an A-lender, a 1-year private mortgage gives you time to rebuild your credit score while keeping your home or completing your purchase. I work with clients to create a concrete timeline: private mortgage for 12 months, then refinance into a B-lender at a lower rate, then qualify for an A-lender within 2–3 years. This structured approach minimizes the cost of private borrowing and gets you to prime rates as fast as possible.
Red Flags to Watch For With Private Lenders
Not all private lenders are created equal, and Ontario has seen its share of predatory practices. Watch out for lenders who charge excessive fees (above 3% is a red flag), don't clearly disclose all costs upfront, pressure you to sign quickly, or don't require you to get independent legal advice. A reputable mortgage broker will only connect you with established, trustworthy private lenders and will ensure you fully understand every cost before you proceed. Never sign a private mortgage commitment without having your own lawyer review it first.
Frequently Asked Questions
Are private mortgage lenders safe to use in Ontario?
Yes, when accessed through a licensed mortgage broker who works with established private lenders. Ensure all terms are documented, get independent legal advice, and understand every fee. Avoid lenders who pressure you or lack transparency about costs.
What credit score do I need for a private mortgage in Ontario?
Private lenders focus primarily on the property's equity rather than your credit score. Most require at least 15–25% equity in the property. While there's no strict minimum credit score, your credit history may affect the rate and terms offered.
How long can I stay in a private mortgage?
Private mortgages typically have terms of 6–12 months, sometimes up to 2 years. They're designed as short-term solutions. Your broker should help you create an exit strategy to transition to a lower-cost conventional mortgage as soon as possible.
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