How does a private mortgage work?
A private mortgage works like any registered mortgage — the loan is secured on title and repaid with interest — but the money comes from a private lender instead of a bank. Approval is based mainly on property equity, property quality and a credible exit strategy. Terms are short (usually 6–24 months), payments are often interest-only, and the borrower pays a higher rate plus upfront fees in exchange for flexibility and speed.
Who private lenders are
- Individual private lenders — investors lending their own capital, often on a single file.
- Mortgage investment corporations (MICs) — pooled funds that lend across many mortgages.
- Private lending firms and syndicates — organized lenders with defined criteria and in-house underwriting.
Meshesha vets lenders on how they price, how they treat fees and extensions, whether they renew reasonably, and how they behave if a borrower falls behind. That vetting is the main reason to use an agent rather than searching for "private lenders near me."
How private mortgage approval works: the 4 things lenders weigh
- Equity / loan-to-value. The core risk measure. Lower LTV means more lender choice and better pricing.
- The property. Location, type, condition and marketability. Urban freehold is easiest; rural, unique or heavily rehab-needed properties are harder.
- The exit. A specific, believable plan to repay at maturity.
- The borrower's story. Credit and income still matter — for context and affordability — but they aren't scored like a bank's.
Step-by-step: from first call to funding
- Initial consultation. Discuss the property, amount needed, timeline, and why private financing is being considered.
- Equity and LTV assessment. Estimate value and combined loan-to-value; most private lenders stay within roughly 65%–80%.
- Exit strategy. Define how the loan will be repaid: refinance to a bank or B lender, sale, or project completion.
- Lender selection. Present the file to private lenders whose criteria fit the region, property, position and size.
- Commitment and disclosure. Receive written terms including rate, fees, term, prepayment, and cost-of-borrowing disclosure.
- Appraisal and legal. Independent appraisal, title search, and independent legal advice before signing.
- Funding. The lender advances funds through the lawyers and the mortgage is registered on title.
- Term management and exit. Make payments, track the exit milestones, and plan renewal or refinance well before maturity.
Private mortgage rates and fees in Ontario
Private pricing is set file by file. As general ranges in the current market:
| Cost | Private 1st mortgage | Private 2nd mortgage |
|---|---|---|
| Interest rate | ~7–12% / yr | ~9–15% / yr |
| Lender fee | ~1–3% of loan | ~2–4% of loan |
| Brokerage fee | ~1–2% of loan | ~1–3% of loan |
| Appraisal | Few hundred to ~$1,000 | Few hundred to ~$1,000 |
| Legal | Borrower's lawyer + sometimes lender's | Same |
All costs are disclosed in writing, including the annual percentage rate, before you commit. Rates move with the broader market and individual file risk.
How long a private mortgage takes
Many straightforward files can fund in about one to two weeks once documents are in; urgent files with clean title and a quick appraisal can sometimes move faster. The slowest parts are usually the appraisal and legal work, not the lender's decision.
Exit strategies that lenders accept
| Exit | What has to be true at maturity |
|---|---|
| Refinance to bank / B lender | Credit repaired, income documentable, LTV within lender limits |
| Sale of the property | Realistic list price and market time vs. remaining term |
| Construction / renovation completion | Project finished, re-appraised value supports a refinance |
| Sale of another asset | Firm agreement or clear timing on the other sale |
| Renewal (fallback) | Payments current, equity maintained, lender willing |
Risks to understand
- Cost: higher rates and upfront fees reduce the net amount you receive.
- Short terms: maturity comes quickly; a missed exit can mean renewal fees or forced decisions.
- Interest-only: your principal doesn't decrease unless you make prepayments.
- Default consequences: private lenders can enforce faster than many borrowers expect.
This is why Meshesha treats "should you do this at all?" as the first question, not the last.