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People search for this phrase when a bank has said no, or when the options on the table have all been bank products they cannot qualify for. A private second mortgage is one of the things left. It deserves a clear explanation, because it is a legitimate product and an expensive one, and the difference between a good use and a bad one is usually the plan for how it ends.
The plain definition
A mortgage is a loan secured against a property. A second mortgage is a loan secured against the same property behind an existing mortgage. A private second mortgage is one where the lender is not a bank or a credit union: it might be a mortgage investment corporation, a syndicate of investors or an individual.
The Financial Consumer Agency of Canada describes a second mortgage as a loan of up to 80% of your home’s appraised value minus your mortgage balance, paid out in one lump sum. Its rate can be fixed or variable and is usually higher than on a first mortgage, because the lender sees it as riskier. You must keep making the payments on your first mortgage.
How it ranks, and why that sets the price
The order in which lenders are repaid depends on the order of registration, so the first mortgage gets its money back first. The two examples above put numbers on it. When the home sells well, both lenders are repaid. When it sells badly, the second lender can be left short, and that possibility is what the extra interest and fees pay for.
This is also why a second lender cares so much about the equity. It is looking at the combined loan-to-value, which is everything secured on the home, including its own loan, divided by the value. The calculator shows yours.
Private versus bank
Banks and credit unions that are federally regulated work under underwriting rules. The Office of the Superintendent of Financial Institutions, in its clarification of Guideline B-20, sets a maximum of 65% loan-to-value for a HELOC and an overall limit of 80% for a combined plan. Those limits shape what a bank can offer.
Private lenders are outside that framework in the sense that they are not federally regulated banks, and they make their own decisions on the home, the equity and the borrower. That is how a private lender can say yes to a self-employed owner with irregular income or to someone whose credit has been damaged. It is also why you must check the terms yourself, because the guard rails a bank works within are not guaranteed to be there.
How big is private lending
In Ontario, private lenders made up 15.8% of mortgages by number in 2024 and 12.5% by value, according to FSRA’s 2024 private lending report. It is a normal part of the market, and a large share of borrowers use it.
What it costs
The costs are the interest, a lender fee, a broker fee and the closing costs: legal work, an appraisal, title costs and registration. The agency lists appraisal, title search, title insurance and legal fees among the costs of borrowing against your home. The list on our costs page goes line by line.
Ask for the total in dollars for the full term, and for what you will still owe at the end. A loan that looks affordable on the monthly payment can be expensive on the total, which the consolidation page shows with numbers.
The term and the exit
Many private loans are short, with the balance due at the end of the term. Terms vary, so ask for yours in writing. At the end you repay, refinance or extend. Repaying requires money you have set aside or will receive. Refinancing requires that a bank will lend to you then, on your credit and income then. Extending may cost a fee and depends on the lender agreeing.
If you cannot name which of these will happen, you do not yet have a plan, and a lender who does not ask about it is not helping you.
The risks, stated plainly
The loan is secured against your home. The agency says that if you cannot repay, you could face serious consequences, including foreclosure. A second mortgage also adds a second set of payments and a second lender with rights over the property. If you fall behind on either loan, both lenders can act.
A private second mortgage is also not the only way to use equity. A HELOC may cost less if a bank will approve it, a refinance replaces the first mortgage instead of sitting behind it, and a consumer proposal through a Licensed Insolvency Trustee may suit people who cannot pay debts in full.
Who should arrange it
A licensed mortgage broker or agent in your province. In Ontario, FSRA’s licensing rules, in effect since April 1, 2023, say that Level 1 agents can deal only with financial institutions and lenders approved under the National Housing Act, while Level 2 agents and brokers can deal with every lender, including private lenders. Ask for the licence number and check it with the regulator. Other provinces have their own regulators and rules, and the province pages cover them as they are written.
A note on language
You will hear several names for the same idea: private second, second charge, junior mortgage, home equity loan from a private lender. The details differ at the edges, so always ask what is being offered, where it ranks on title, and who the lender is.
A short checklist before you sign
- You have the total cost in dollars, in writing.
- You know the date the loan is due and what an extension costs.
- You have a written exit plan and a back-up plan.
- You have read the agreement, ideally with a lawyer.
- You have checked the licence of the person arranging it.
If you want a licensed professional to look at your situation, you can check your options. It asks for a call and commits you to nothing.
Who is paid first when the home sells for $700,000
Made-up figures. Selling costs are assumed at 5% of the price. The first mortgage is $450,000 and the private second mortgage is $100,000, ignoring any interest owing.
- Sale price
- $700,000
- Selling costs, assumed 5%
- -$35,000
- First mortgage repaid first
- -$450,000
- Second mortgage repaid next
- -$100,000
- Left for the owner
- $115,000
The same home selling for $520,000
Same made-up loans and an assumed 5% selling cost, in a market where the home sells for much less.
- Sale price
- $520,000
- Selling costs, assumed 5%
- -$26,000
- First mortgage repaid first
- -$450,000
- Available to the second lender
- $44,000
- Second mortgage balance
- $100,000
- Unpaid on the second mortgage
- $56,000
Questions people ask
Is a private second mortgage the same as a second mortgage from a bank?
The structure is the same: a loan registered behind your first mortgage. The lender is different. A bank works under federal underwriting rules and looks closely at income and credit, while a private lender relies mostly on the equity in the home and the plan to repay, and charges more for that flexibility.
Do I need to keep paying my first mortgage?
Yes. The Financial Consumer Agency of Canada notes that with a second mortgage you must keep paying the first. Missing a payment on either loan can lead to enforcement by that lender.
Can the lender sell my home if I miss payments?
A mortgage lets the lender enforce against the home if you default, by methods that differ by province. In Ontario the process is set by the Mortgages Act, and the power of sale guide explains the notice and waiting periods.
Why would I choose private over a bank?
Usually because a bank said no, because the timing is tight, or because your income is hard to document. Those are good reasons to look at private lending, and also reasons to be careful about the total cost and the exit.
Who should arrange a private second mortgage for me?
A licensed mortgage broker or agent in your province. In Ontario, FSRA's rules say only Level 2 agents and brokers can deal with private lenders, so ask for the licence number and check it.
What happens at the end of the term?
The balance is due. You repay it from a refinance, a sale or savings, or you ask the lender to extend, which may carry a fee. Settle your answer before you sign, because the due date arrives whether the plan worked or not.
Sources
- Financial Consumer Agency of Canada: Borrowing against your home equity
- FSRA: 2024 private lending report
- Investment Executive: Slight dip in Ontario private mortgages in 2024, FSRA
- OSFI: Clarification on innovative real estate secured lending products under Guideline B-20
- FSRA: New mortgage agent and broker licensing requirements