Private lending exists for homeowners who cannot get a mortgage the traditional way. If you have bad credit, non-traditional income sources a bank will not accept, or a time-sensitive deal that must close fast, a private mortgage may be the right path forward. This guide covers what private mortgages are, how they differ from traditional bank mortgages, when they make sense, and what they actually cost. Windsor Mortgage Solutions helps clients across Windsor-Essex County work through both options and choose the one that protects their financial future.
What Is a Private Mortgage?
A private mortgage is a home loan funded by a private individual, private company, or Mortgage Investment Corporation (MIC) not a bank. The property itself acts as collateral, meaning the lender’s decision rests on the value of the home, not your employment history or credit score.
Private lenders are not bound by the same federal rules that banks must follow. This makes private lending a more accessible option for borrowers who may not meet the strict approval standards of major financial institutions. In Ontario, all private mortgage transactions must be arranged through an FSRA-licensed mortgage broker under the Mortgage Brokerages, Lenders and Administrators Act (MBLAA).
How Private Mortgages Work
Private mortgages are short-term loans, typically lasting 6 months to 3 years. The repayment terms work differently from a standard bank mortgage. Most private loans are structured as interest-only payments, which keeps your monthly cost lower while the full principal balance remains due at the end of the term.
Private lenders can also customize loan terms to fit your specific situation something rigid bank underwriting processes rarely allow. When the term ends, you have three options: qualify for a traditional mortgage, renew with the private lender, or sell the property.
Approval is based primarily on your loan-to-value (LTV) ratio the amount you are borrowing compared to the home’s appraised value. Most Ontario private lenders will finance up to 75–80% LTV for urban properties and up to 65% for rural ones. The more equity you have in the home, the stronger your application.
When to Consider Private Lending
Private lending is for borrowers who need financing now but cannot qualify through traditional channels. It is not meant to be a permanent solution it is a short-term bridge with a defined purpose.
The following are the clearest reasons to choose a private mortgage:
- You need a short-term loan fast. Private lenders close deals in as few as 4 days. Traditional bank approvals take weeks due to multi-stage reviews.
- You have bad credit or recent credit issues. A low credit score, past bankruptcy, or consumer proposal does not automatically disqualify you with a private lender.
- You are self-employed. Self-employed individuals with non-traditional income sources often cannot meet strict bank documentation requirements. Private lenders look at property equity instead.
- You need quick bridge financing. Short-term funding while you wait for a property to sell or a bank approval to come through.
- You want to consolidate debt. Home equity can be used to pay off high-interest debts or tax arrears through a private mortgage.
- You are one of many real estate investors. Real estate investors who need to act on a time-sensitive investment opportunity, fund a renovation, or pursue real estate investments that banks will not finance due to property condition or type.
Private Mortgage vs. Traditional Mortgage: Key Differences
One of the biggest differences between private and traditional mortgages is how lenders decide to approve you.
Traditional lenders apply rigid qualification criteria credit score, employment history, income stability, and debt-to-income ratios. Borrowers who may not meet these requirements get turned away by banks due to guidelines that leave little room for exceptions. Private lenders offer more flexible approval criteria, focusing on the property’s equity rather than the borrower’s financial history.
Speed is the second major difference. Traditional mortgage approvals take weeks. Private lenders approve applications and close deals within days, which makes them the right lender when timing cannot wait.
Cost is the third difference. Traditional mortgages carry lower interest rates typically 5% to 7% for qualified borrowers. Because private lenders take on higher-risk borrowers, they charge higher interest rates that currently range from 8% to 15% in Ontario. Lender fees of 1–3% of the loan amount are also deducted at closing.
When a Traditional Mortgage Makes More Sense
If your credit score is above 680, your income is stable and verifiable, and your borrowing timeline is flexible, a traditional mortgage will cost you significantly less over time. Private lending should always be a temporary, strategic step not a long-term plan.
What Does a Private Mortgage Actually Cost?
Your rate depends on your LTV ratio, property type, credit profile, and term length. Beyond the interest rate, here are the additional costs to budget for:
- Lender fees: 1–3% of the loan amount, deducted from the advance at closing.
- Broker fees: A licensed mortgage broker typically charges 1–2% to arrange the loan.
- Legal fees: Both the borrower and lender need independent legal representation approximately $1,500–$3,000 at closing.
- Appraisal fees: An independent property appraisal is required to confirm market value.
- Late payment penalty: Missing a payment or letting your property insurance lapse can trigger additional fees. Read your agreement carefully.
Knowing the full cost before you sign protects you from surprises. Windsor Mortgage Solutions walks every client through a complete cost breakdown before any commitment is made.
Not All Lenders Are Created Equal: Why Due Diligence Matters
When you need to secure financing through private lending, the lender you choose matters as much as the rate you receive. Not all lenders are created equal some charge excessive fees, impose restrictive conditions, or structure deals that do not protect the borrower. Before signing any private mortgage agreement, conduct proper due diligence. Confirm that the broker arranging the loan is FSRA-licensed. Verify all loan terms in writing and have an independent lawyer review the full agreement before you sign.
Choosing the right private lender also means matching the lender’s experience to your situation. Some lenders specialize in real estate investments and commercial deals. Others focus on residential borrowers with credit issues or self-employed individuals who cannot qualify through traditional lenders. Expert advice from a licensed mortgage broker ensures you are matched with the right lender profile and that you are not overpaying for access to financing solutions you could have found at better terms with proper guidance.
Why Use a Mortgage Broker for Private Lending
Private lenders do not advertise openly. Finding them requires an established network of trusted connections. A licensed mortgage broker has direct access to multiple private lenders, compares financing solutions, and negotiates loan terms that fit both your property and your financial situation. Working through a licensed broker also gives you legal protection under the MBLAA, all mortgage brokering activity in Ontario must be conducted by a licensed professional.
Windsor Mortgage Solutions serves borrowers across Windsor, Leamington, Tecumseh, LaSalle, Amherstburg, and Lakeshore matching clients with trusted private lenders and building mortgage strategies that address both immediate needs and long-term financial goals.
Your Next Step Starts Here
Private lending is a practical, short-term financing tool for Windsor-Essex homeowners and investors who face gaps that traditional banks cannot fill. With the right plan and professional guidance, a private mortgage gives you the time and flexibility to stabilize your finances and transition back to conventional lending. Windsor Mortgage Solutions helps clients throughout Windsor-Essex County understand every option including private lending and build a mortgage strategy that works now and protects what comes next.
Contact Windsor Mortgage Solutions today for a no-obligation consultation at our Leamington or Tecumseh office locations.