If you comfortably qualify at a bank, strong credit, verifiable income, and time on your side, a traditional bank mortgage typically delivers the lowest borrowing cost and long-term stability. If timing is tight, your income is non-traditional, credit has taken a hit, or the property is unique, a private mortgage can serve as a short-term, flexible bridge toward a more permanent solution.
This guide compares approval standards, costs, timelines, terms, and regulatory guardrails so you can choose the route that best aligns with your goals in Canada.
Understanding Private Mortgages vs. Bank Mortgages
Before comparing features, it’s important to grasp what each type of lender offers:
What is a Traditional Bank Mortgage?
A traditional bank or credit union mortgage is underwritten to standardized guidelines, with federally regulated lenders supervised by the Office of the Superintendent of Financial Institutions (OSFI). You must pass the “stress test” at the greater of your contract rate + 2% or 5.25% (the current minimum qualifying rate (MQR) for uninsured mortgages), ensuring you can withstand rate changes.
What is a Private Mortgage?
A private mortgage is financing from private individuals, corporations, or mortgage investment entities. Underwriting leans more on the property’s equity and marketability than on conventional income proof. These loans are usually short-term, often interest-only during the term, and come with higher rates and fees, designed to be a temporary solution while you repair credit, document income, complete renovations, or close quickly.
Private Mortgage Lenders vs. Banks: Quick Comparison
When weighing a private lender versus a bank mortgage, consider the following key differences in how these loans work:
Qualification: Who Typically Gets Approved Where
Banks scrutinize your total debt service ratios, employment/income stability, credit history, and down payment. You must also qualify under the OSFI stress test (greater of contract + 2% or 5.25% for uninsured).
Private lenders, by contrast, are more flexible on documentation and credit if there’s sufficient equity and a plausible exit strategy (e.g., refinance after tax returns show income, complete improvements, or consolidate debt). This is why many Canadians who cannot pass the bank’s test today look to private options as a bridge, especially self-employed borrowers with write-offs.
For many borrowers, the choice of a private lender versus a bank mortgage comes down to passing the stress test versus leveraging equity/LTV, and those who qualify for a private mortgage in Canada typically demonstrate sufficient equity and a credible plan to refinance or sell within 12-24 months.
Interest Rates and Fees: Understanding the Costs
Look beyond headline rates to total cost over your holding period:
- Banks: Lower interest rates on average, plus standard closing costs (appraisal, legal). If your down payment is below 20%, mortgage insurance rules apply; the federal guidance indicates the minimum down payment starts at 5% (5% of the first $500,000; 10% of the portion above that).
- Private Lenders: Higher rates that reflect risk and short terms, plus lender/broker fees, admin/legal/appraisal costs, and potentially renewal or discharge fees; many private mortgages are interest-only during the term.
While specific private-rate ranges vary widely by lender, loan-to-value, and region, the core economics remain consistent: private financing is a short-term tool to solve a time or qualification problem; the total cost over your holding period depends on how quickly you can refinance or exit. Financial Services Regulatory Authority’s (FSRA) market review confirms why private solutions have grown: traditional underwriting has tightened while affordability pressures persist, pushing some borrowers to short-term alternatives.
Model your “all-in” cost, not just the sticker rate, i.e., add fees, months in a higher rate, and the timing to refinance.
Timing and Use Cases: When a Private Mortgage Makes Sense
Often, private lenders offer:
- Tight closings where bank underwriting timelines could jeopardize a purchase.
- Bridge financing between a purchase and sale, or while you wait for funds; bridges are typically short-term by design.
- Renovate-to-refinance strategies to unlock a better bank rate once improvements are complete.
- Self-employed or variable income, where verified income will be stronger in the upcoming tax year.
- Non-standard properties (rural, mixed-use, significant repairs) that banks may avoid.
- Private lenders’ home loans are typically short-term, often interest-only solutions designed to bridge to bank financing.
When your situation is stable and you plan to hold long term, a bank mortgage remains the lowest total-cost option for most households.
Terms, Amortization, and Payments: How They Differ
Plan your exit before you enter:
- Banks: You’ll commonly see a 5-year term within a 30-year amortization, paying both principal and interest. Terms can range from months to 10 years, but the 25 and 30-year amortizations remain the most common baseline.
- Private: Expect 1-2 year terms, often interest-only payments to keep cash flow manageable, with a balloon at maturity. Enter with an exit plan to refinance or sell before the term ends.
Regulation, Risk, and Due Diligence
Canada’s banks and federally regulated lenders operate under OSFI oversight, with standardized disclosure and capital rules designed to protect the system and consumers. In Canada, oversight differs for a mortgage company versus a bank: banks are federally regulated, while private deals are arranged through provincially licensed brokerages.
Private mortgages differ from their counterparts, home loans offered by banks. While many private lender bodies are not under federal regulation, those arranging these mortgages for consumers, the mortgage brokerages, brokers, and agents, must be licensed and regulated by provincial bodies (e.g., FSRA in Ontario). FSRA has set forth even higher educational requirements for agents and brokers dealing in private mortgages, emphasizing the need for product suitability and clear consumer explanation.
So, does a private mortgage need to be recorded? Yes, a private mortgage must be registered on title as a charge in your provincial land title/registry system; this perfects the lender’s security interest and is later discharged when you repay. In B.C., for example, changes to the title, such as a mortgage, require an application to the Land Title and Survey Authority (LTSA); Ontario’s land registration system likewise records ownership and charges on title.
You can have an independent real-estate lawyer review all private-mortgage documents, fee schedules, renewal options, and default remedies before you sign.
A Simple Decision Framework: Speed, Qualification, and Total Cost
Use this two-minute filter to steer your choice:
- Can you comfortably qualify at a bank, and do you have time?
Choose the bank path for the lowest long-run cost and greater predictability (subject to renewal terms and rates). Canada’s market typically uses 5-year terms with 25-year amortizations; you’ll revisit rates at renewal. - Is your approval uncertain, or is timing critical?
Consider a private mortgage as a short-term bridge if equity is sufficient and you have a credible path to refinance or sell. FSRA specifically frames private loans as temporary, with higher rates/fees and the need for a realistic exit strategy. If you need a private lender for a mortgage due to timing or documentation gaps, treat it as a short-term bridge with a clear exit plan. - Is the property atypical or in transition (e.g., major renos)?
Private funding can unlock a purchase or renovation that positions you to refinance at bank terms later.
How to Build a Custom Solution Around You
The goal is to compare your bank track and private track side-by-side, then design a custom-built path that fits your affordability, timeline, and risk tolerance. That includes:
- Affordability modelling (today and post-renovation/after tax filings).
- Scenario-based total cost analysis (interest + fees + months until exit).
- Exit-strategy design, like refinance triggers, date targets, and equity thresholds.
- Lender matching who is most likely to approve your scenario promptly, at a cost that still makes sense over your holding period.
Choosing a private mortgage or a traditional bank mortgage can overwhelm you, but you don’t have to do it alone. An experienced and independent mortgage broker can explain your genuine alternatives, rates, questioned fees during the process, timelines, qualification hurdles, and how they relate to your credit profile, timeline, and goals. Mortgage services in Canada are lengthy, comprising major banks, credit unions, alternative lenders, and private capital; hence, a series of possibilities can fit one situation depending on what the person is trying to achieve.
Once one gets the hang of the big differences between these types of funding and hears some unbiased advice, it is easy to make a decision and proceed with confidence. Equity Rich works on custom financing strategies tailored to put your goals first. If you’re ready to tap your home equity or seek the path best for you, contact Equity Rich today.