Who this is for: Homeowners whose bank first mortgage cannot be renewed or replaced, or who need a first charge on a property or file that banks will not lend on.

On this page

Most Canadians never meet a private first mortgage. They renew at a bank, pay it down and move on. The ones who do meet it are usually in a bind: a bank would not renew, the income did not fit the form, or the closing date was too close. If that is you, you deserve a plain account of what the product is.

What a private first mortgage is

A first mortgage is the loan that sits first in line against the home. If the property is sold to repay debts, the first lender is repaid before anyone else. A private first mortgage is the same loan from a lender that is not a bank. It can be an individual, a pooled fund or a company that lends its own or investors’ money.

This market is not small. The Financial Services Regulatory Authority of Ontario’s 2024 report counts about 65,000 private loans, which is 15.8% of Ontario mortgages by number and 12.5% by value ($32 billion). An Investment Executive article summarizing the report adds 1,729 private lenders and a non-bank lender delinquency rate of 0.2% in the third quarter of 2024. Those are Ontario numbers for 2024, and they say the market exists, not that any loan is safe.

When it can make sense

It can make sense when time and certainty matter more than cost, and the cost is short. A homeowner whose bank refuses to renew because of a recent income change may use a private first for a year while paperwork catches up. A buyer whose purchase involves an unusual property may need a lender that looks at the building rather than the template.

It can also make sense when a private loan replaces a worse alternative. If the choice is between a private first and the sale of a home at a bad moment, or between a private first and a tax lien, the private loan may cost less than doing nothing. That can be true, but only if you have run the numbers.

When it makes things worse

It makes things worse when the loan is meant to last. The cost is higher than a bank mortgage in every layer, and the term is usually shorter, so a long stay means paying that gap again each year.

It also makes things worse when the exit is vague. If the plan reads “rates will come down” or “something will turn up,” the due date will arrive on its own schedule. A private first with no exit is the most expensive way to postpone a decision.

What it really costs

Interest, a lender fee, a broker fee where one applies, and third-party costs. The agency lists appraisal, title search, title insurance and legal fees as administrative costs of borrowing against a home. Both worked examples above show the size of that bill with assumed numbers: $46,750 in year one on $350,000, and a $26,750 gap against a bank loan.

Add the cost of leaving your current mortgage. If your term has time left, a prepayment penalty may apply, and a discharge fee and legal fees may be charged to remove the old lender’s charge. The agency says a discharge fee typically ranges from no charge up to $400 where the fee is not regulated, with lawyer fees typically between $400 and $2,500. Put every figure in your total.

Compare the payment with your income before you compare it with any other loan. Interest on $350,000 at an assumed 10% is about $2,917 a month with nothing going toward principal. If a household that was paying a bank mortgage at a lower rate needs that much more every month, the question is not only whether a lender says yes. It is whether the budget survives twelve months of it.

The risk to your home

The first lender is the strongest creditor on your property, and its rights come with the mortgage. The agency warns that borrowing against home equity may lead to serious consequences, including foreclosure, if you cannot repay. Under a short term, the risk lands sooner: you have to repay, renew or replace the loan in months, not years.

In Ontario, a lender who has been unpaid can start the process described in the power of sale guide. Other provinces have their own processes. If you ever receive a notice, speak to a lawyer before you do anything else.

What to try before a private first

Ask your current lender what is possible, and ask in writing. Then ask a mortgage professional about bank and B-lender options, which sit between the major banks and fully private lending. The agency lists credit unions, financing companies and mortgage investment companies among lenders and says rates can depend on the type of lender, so a few quotes can change the answer.

If the problem is a budget that cannot support any mortgage, consider selling, or a Licensed Insolvency Trustee for a conversation about a consumer proposal. Trustees usually do not bill for an initial consultation. If the only issue is timing, ask whether an extension of your current term is on offer.

How the exit works

The exit of a private first is a refinance with a bank or B-lender, a sale, or a payoff from a known sum. Because the term is often short, the exit should be mapped from day one: what has to change in twelve months for a bank to say yes? That might be a tax return, a job anniversary, a cleaner credit report, or the sale of another asset.

Ask what happens if the exit is late. A lender may offer an extension for a fee or at a higher rate, or it may not offer one. Know the answer before you sign.

What to ask before you sign

  • The full cost of borrowing in dollars for the term, including the fees at the start.
  • The date the loan is due, and what an extension would cost.
  • What it costs to repay early.
  • What your current lender will charge to discharge its mortgage.
  • Who the lender is, and whether the person arranging the loan holds the licence the province requires. Ask for the licence number and check it with the regulator.

A licensed mortgage professional in your province can walk through these with you. You can check your options without any commitment. The calculator is a good place to begin if you have a quote in hand.

Year one on a $350,000 private first mortgage

Made-up figures, not typical or current rates. Interest only at an assumed 10%, an assumed 1.5% lender fee, an assumed 1% broker fee, and an assumed $3,000 for legal, appraisal and title.

Interest for a year
$35,000

$350,000 x 10%

Lender fee, assumed 1.5%
$5,250
Broker fee, assumed 1%
$3,500
Legal, appraisal and title
$3,000
Cost of the first year
$46,750

About $2,917 a month in interest alone, plus $11,750 of fees at the start. The loan only makes sense if the year buys you something, such as time to fix an income gap or to qualify for a bank loan.

Illustration only. The figures are made up to show the arithmetic. They are not a quote, a rate or an offer.

The gap between a bank first and a private first on the same $350,000

Made-up figures. The bank loan is assumed at 5% interest only with an assumed $2,500 in setup costs. The private loan is the first example. This is a sketch to show the size of the gap, not a quote.

Bank interest for a year
$17,500

$350,000 x 5%

Bank setup costs
$2,500
Bank cost in year one
$20,000
Private cost in year one
$46,750
Extra cost of the private first for one year
$26,750

On these assumed terms, the private first costs $26,750 more than a bank would for a year. That is the amount the bank's no costs you, and the amount to weigh against any other way of solving the problem.

Illustration only. The figures are made up to show the arithmetic. They are not a quote, a rate or an offer.

Questions people ask

How big is private mortgage lending in Ontario?

FSRA's 2024 report counts about 65,000 private loans, 15.8% of Ontario mortgages by number and 12.5% by value (about $32 billion). Investment Executive, summarizing it, adds 1,729 lenders and 0.2% non-bank delinquency in the third quarter of 2024. Ontario figures only.

Do I need to pay out my bank mortgage to switch?

A private first replaces the old first charge, so the old lender is paid out and discharged. If your term has time left, a prepayment penalty may apply. Ask your lender for the exact figure in writing before you decide, since it is part of the real cost.

Can a private lender take a first position on any property?

Lenders choose what they will take. Condition, location, use and the reasons banks declined all matter, and some properties are harder to finance than others. A lender may ask for an appraisal and a title search, and those are costs you can expect.

Is the term longer or shorter than a bank's?

Terms vary by lender, and many private loans run for a short period with the balance due in full at the end. Ask for the term in writing. A short term means you will face the question of the next lender sooner.

What is the difference from a private second?

A first sits ahead of every other charge, so the lender is repaid first if the home is sold. A second sits behind the first and takes more risk, which is why seconds usually cost more. Private firsts still cost more than a bank first.

Can I be offered a private first with no income checks?

Some lenders weigh equity more than income, and they still want to know the payment is affordable and the exit is real. If a lender skips every question about both, treat it as a warning about how the loan may end, not as good news.

Keep reading

Sources