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More and more Canadians are looking for alternatives to the big banks to fulfill their mortgage needs, and private lenders in Canada are growing in both number and size. But while getting a mortgage from your bank may seem relatively simple, the process for obtaining a private mortgage can be more opaque. So we’re here to help, with everything you need to know about private mortgages in Canada – including how they work, available lenders, and why you might want to use one.
Let’s start with the table below; this shows private mortgage companies in Canada that have been tried and tested by real Canadians. Browse their rates, products and reviews, and click on a company name to find out more about them.
We can help connect you with the top, first and second private mortgage providers in Canada.
The term “private mortgage” is used to describe a spectrum of non-traditional mortgage lending, but the common element in private lending is that the company doing the lending is privately owned – so not a bank, credit union, publicly-held company or trust.
There are three main types of private mortgage lender in Canada:
Any mortgage from one of these types of lenders is considered a private mortgage.
Initially, the private mortgage market was mainly used by borrowers who couldn’t get a mortgage through the “normal” channels. This included those with:
While private lenders do still cater to this segment of the population, they are now becoming more popular with other borrowers – those who are able to get a loan from their bank, but choose not to do so. It’s interesting to note that this change is largely demographic; 21.3% of Generation Z borrowers choose to use private lenders, versus just 5.7% of Millennials and 6.1% of Baby Boomers.
People are switching to private lenders because they offer:
The Canadian government designates the different types of mortgage provider by letter, and regulation is different for each. Banks and credit unions are “A” lenders and are both federally and provincially regulated; all of their mortgages must meet a standardized mortgage stress test. It is this stress test that means some borrowers – even those with good credit or high income – do not qualify for a mortgage from their bank.
Mortgage investment companies are part of a group known as “B” lenders, and these (as well as private lenders) do not have to adhere to the mortgage stress test, as they are not directly regulated by the federal government. However, they do still have to follow federal guidelines for financial companies. This does mean that they are generally riskier than the big banks, but as long as you do your due diligence and properly understand your mortgage terms, you will avoid any nasty surprises. It is because of the increasing trust in the private mortgage market that the value of Canada’s non-bank mortgage market has increased tenfold in the last decade.
There are many different types of private mortgage available in Canada, such as:
Your exact circumstances will dictate what type of private mortgage is best suited for your needs.
As with any mortgage, a private mortgage charges interest and has various fees associated with it, all of which you must be aware of and include in your affordability calculations. This includes:
It’s worth noting that because private lenders are subject to provincial regulations and not federal regulations, what they can legally charge in each province may vary. So it’s always worth checking your local laws to find out what fees are allowed and what aren’t.
If getting a private mortgage sounds attractive to you, then there are some very easy ways to access the market. The majority of residential borrowers choose to use a mortgage broker, who has access to a range of private lenders and who will help you to compare your options, find suitable solutions and manage the paperwork. Mortgage brokers charge their fees directly to the lender, so their services are free to use. Many private lenders will only work via brokers, to simplify their borrowing and stay in line with regulations.
In addition to brokers, there are online tools to help you find, compare and apply for a private mortgage in Canada. You can also research private lenders online and apply to a company directly; the companies listed in the table above are some of the Canadian companies who allow this.
There are some simple ways to keep yourself financially safe and choose the right mortgage product for you when considering a private mortgage:
Most people find a private mortgage by working with a mortgage broker or online company that helps borrowers sift through their options and find the right mortgage lender and product for them. It’s also possible to apply for a private mortgage directly with some mortgage companies.
Interest rates in private mortgages are quite variable, as the range in borrowers is much greater than with bank mortgages, where everyone has to meet the same eligibility requirements. At the moment private mortgage rates start at about 5%, but can increase to much more for higher risk mortgages.
Private mortgage providers in Canada are not federally regulated in the same way as banks, but they still have to adhere to federal guidelines for financial institutions. They also have to follow relevant local provincial laws for financial entities.
It’s usually much quicker to get approval from a private mortgage lender than a bank; processing times are on the order of a week, and funding can be released as quickly as 2-3 weeks after application.
If your private lender ceases operation for any reason, your loan does not disappear; instead the debt will be bought by someone else, so you’ll still have to make your mortgage payments as usual.
Some people choose to use private lenders even if they can get a good rate from their bank, because they do not wish to contribute more profit towards large conglomerates, or because they simply find the terms and products available from private lenders more attractive. For example, some private lenders have much more flexible repayment options than banks.
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