Private Mortgage Lending in Canada

What are private mortgage lenders?

Private mortgage lenders are private corporations and individuals that lend out their own money. This includes Mortgage Investment Corporations, where money from private investors is pooled to fund syndicated mortgages. Private lenders do not accept deposits from the public, and so they are not federally or provincially regulated.

Private mortgages are typically shorter and come with higher interest rates and fees than those offered by traditional mortgage lenders. They are meant to be a temporary measure before transitioning back to typical mortgage lenders.

Why should I consider a private mortgage lender?

If you have a low or subprime credit score below 680, you will likely need a private lender. Mortgage lenders can use your credit score to look at your financial health, which can translate into being approved for a mortgage or not. Not missing any payments, having a low credit utilization rate, carrying a low (or zero) balance on credit cards, and having a long credit history will improve your credit score.

A minimum credit score of 680 is required for CMHC mortgage insurance. As most B Lenders deal with insured mortgages, not being able to qualify for a CMHC insured mortgage will exclude you from many B Lenders. Lenders may also require you to obtain mortgage insurance even if you make a downpayment larger than 20%.

How can I check my credit score?

The two credit reporting agencies in Canada are Equifax and TransUnion. You can request your credit score and credit report from these agencies by mail or online for free. They also offer additional products and services for a fee, such as credit monitoring.

Equifax and TransUnion only report information within Canada, even though they operate in many countries including the US. Your credit history outside Canada may not be recognized depending on your financial institution. Newcomers and new immigrants to Canada may have trouble qualifying for a mortgage if they have a limited Canadian credit history.

Who can private mortgage lenders help?

Private mortgage lenders help fill the gap left by traditional lenders. Those with a limited Canadian credit history, such as new immigrants, may face additional hurdles when trying to get mortgage approval from banks.

New Immigrants

As Equifax and TransUnion only collect credit information within Canada, those with a foreign credit history may have to start from scratch. Some lenders may provide exceptions. Newcomers to Canada may also have limited Canadian employment history. RBC requires a minimum 35%downpayment for new immigrants to Canada without at least two years of Canadian employment history. RBC would also require a letter of reference from the mortgage applicant’s home bank.

Self-Employed/Irregular Income

Banks often require two years of employment history to prove that they have a steady source of income. Getting a self-employed mortgage presents challenges, such as if your income is not steady and fluctuates significantly. This especially impacts those whose income is based on commission or tips.

Foreign Income

Those with foreign income may also find it more difficult to qualify for a mortgage, especially if it is not easily verifiable or recognized. However, exceptions apply. In 2016, it was reported that BMO requires foreign clients to make a downpayment of at least 35% to qualify for a mortgage. Scotiabank was found to require the verification of foreign income sources if a downpayment of less than 50% was made.

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Bad Credit Mortgages

Private mortgage lenders are an option for those with bad credit or with no credit history. A private mortgage lender might be more interested in how much equity you have in your home, rather than looking solely at your credit history.

Private mortgage lenders may report to credit bureau agencies, however not all do. Making regular and on-time payments on your private lender mortgage may help increase your credit score which may help you qualify for an A Lender or B Lender mortgage when it comes time to renew.

How do I find a private mortgage lender?

Most private mortgage lenders only work with mortgage brokers, either by regulation or to simplify sourcing. These mortgage brokers will help you find the best type of mortgage that is most suitable for your financial situation, negotiate with mortgage lenders, and submit documents on your behalf. Mortgage brokers may be compensated by the lender. If they receive a commission or any compensation, they must disclose the amount to their client.

Private Mortgage Lender Comparison

WOWA.caAreas ServedInterest RatesMaximum LTV
Alpine CreditsBritish Columbia, Alberta, and Ontario5.75% - 17.2%75%
Prudent FinancialOntario5.75% - 9.9%50%
canadalend.comOntario2nd Mortgage: 5.99%+85%
Clover MortgageOntario5.49%+90%
Calvert Home MortgageAlberta8.50% - 15.50%80%
Guardian FinancingMontreal9% - 15%75%
Trillium MortgageOntario5.99% - 14.99%80%
Sun MortgageManitoba and SaskatchewanVaries75%
Threshold MortgageWinnipegVaries75%
Cliffton CapitalQuebecVaries75%
Craigburn CapitalQuebec10%+75%
Private Lender Inc.All Provinces4.99%+80%
Dhugga MortgagesOntario5.49%+75%

Private Mortgage Lenders vs. Banks

Private mortgage lenders are an alternative to those denied by traditional A lenders, such as Canada’s Big Six Banks (RBC, TD, Scotiabank, BMO, CIBC, and National Bank), chartered banks, and credit unions. Banks are federally regulated in Canada, and are required to conduct a mortgage stress test to determine if you are able to afford your mortgage payments if interest rates rise.

Although not required, some provincially regulated financial institutions such as credit unions also conduct a mortgage stress-test . What happens if you fail a mortgage stress test? If you fail the mortgage stress test, that lender cannot lend to you even if you meet all of their other criteria, such as credit score. Private mortgage lenders are not required to conduct a mortgage stress test and are an option for you if you have failed it.

WOWA.caBank LendersPrivate Lenders
Average Interest Rate3.17%9.8%
Interest Rate Range1.5% - 5.2%Private Lenders
Data from the CMHC and WOWA.ca Canada Mortgage Rates. Updated Sept. 2020

Private Mortgages as Temporary Funding

The short-term nature of private lender mortgages serve to bridge the gap for those with temporary financial problems. If you have recently lost your job, divorced, or met unexpected large expenses, a private lender can be a band aid solution until your financial situation improves.

They can also act as bridge loans while you try to secure longer term financing, such as financing the down payment on the purchase of a new home while you are awaiting the sale of your current home. It can also be used to temporarily fund renovations to raise a home’s selling price. The quick turnaround time of private lenders gives you access to rapid financing, with some lenders giving same day approvals.

Private Mortgage Lenders vs B Lenders

B Lenders, such as Mortgage Finance Companies (MFCs), are quasi-regulated lenders that are not directly regulated federally but indirectly follow regulations due to the nature of their business. Both private mortgage lenders and B Lenders are not required to conduct a mortgage stress test, and have looser lending requirements than A Lenders.

B Lenders, which are usually larger financial companies, mainly deal with insured mortgages. This means that the loan-to-value (LTV) ratio would be higher than 80%, as in a downpayment of less than 20% was made.CMHC mortgage insurance has specific requirements, such as a minimum credit score, purchase price limit, and amortization period limits. Private mortgage insurance providers, namely Canada Guaranty and Sagen, are alternatives to CMHC mortgage insurance.

Private Mortgages: 50% to 85% LTV

Private lenders mainly deal with uninsured mortgages. As uninsured mortgages mean a high level of risk, private lenders require borrowers to have an adequate amount of equity in their home. The CMHC found that LTV ratios ranged from 50% to 85%. Private lenders also mainly deal with first mortgages, which made up 78% of private lender mortgages, rather than second mortgages. This higher credit priority, along with a low LTV, protects private lenders in the event of mortgage default or a drop in house prices.

Private Mortgage Frequently Asked Questions

How can private mortgage lenders lend special mortgages?

Since they are not subject to regulations, private mortgage lenders can offer much more flexibility in their products and their terms compared to A and B Lenders. The short duration of their mortgages, mainly under two years, allows private lenders to easily adjust mortgage interest rates. It also enables lenders to reassess the financial situation of the borrower much more regularly, ensuring that risk and rates are kept up to date.

Should I stay with a private mortgage lender?

Private lenders are a last-resort option for homeowners who are desperate to get a mortgage, and should only be a temporary stop-gap measure before returning back to A and B Lenders. You should always check to see how much mortgage you can afford.

Since the delinquency rate for mortgages at private lenders is seven-times higher than the delinquency rate at banks, private lender mortgage rates are much higher than those offered by A and B Lenders.

What happens to my mortgage if the private lender goes bankrupt?

In the event that your mortgage lender goes bankrupt, your mortgage will be sold to another lender. Your mortgage does not disappear; you will still have to continue to make payments to the new lender.

As the CMHC says, unregulated lenders “are not subject to federal rules about the amount of funds they must keep in reserve for credit losses arising from mortgage loans”. This might mean that private lenders can be more likely to go under if widespread mortgage defaults occur.

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Private Mortgage Statistics

Private Mortgage Interest Rates

Residential mortgage data from the Canada Mortgage and Housing Corporation (CMHC) shows that interest rates for mortgages from private lenders ranged from 7% to 15% in 2019. In the fourth quarter of 2019, the average lending rate by the top 25 private MICs was 9.8%. In comparison, Canada’s chartered banks had rates ranging from 3.1% to 5.2% in 2019, with rates in October 2020 now as low as 1.5%.

Types of Private Mortgages

Private lenders mainly deal with uninsured mortgages. As uninsured mortgages mean a high level of risk, private lenders require borrowers to have an adequate amount of equity in their home. The CMHC found that LTV ratios ranged from 50% to 85%. Private lenders also mainly deal with first mortgages, which made up 78% of private lender mortgages, rather than second mortgages. This higher credit priority, along with a low LTV, protects private lenders in the event of mortgage default or a drop in house prices.

Share of the Mortgage Market

In 2019, Private Lenders and Mortgage Investment Corporations (MICs) only made up 1% of all mortgages outstanding in Canada.

In Q4 2019, 49.2% of all private mortgages in Canada were in Ontario, a significant increase from 37.5% in Q4 2018. British Columbia’s share of private mortgages fell from 42.2% in Q4 2018 to 34.7% in Q4 2019. Combined, Ontario and British Columbia accounted for 83.9% of all private mortgages in Canada. Private lenders are generally concentrated in large urban centres, predominantly Toronto and Vancouver.

Average Private Mortgage Term

The CMHC in 2016 found that private mortgages typically lasted six to 24 months. Atrium, the fourth largest MIC in Canada, has an average mortgage term of 18 months. Their weighted average term remaining is 8.3 months.

Average Private Mortgage Size

CMHC’s Residential Mortgage Industry Report published in September 2020 showed that the average mortgage held at a private lender was $254,986, higher than the $220,650 average mortgage held at banks.

Private Mortgage Delinquency Rates

Private mortgage delinquency rates at private lenders were at 1.73% in 2016 compared to only 0.24% at the banks, according to the CMHC. Delinquencies rose to 4.39% in 2019, with another 2.36% in foreclosures.

Private Mortgage Lender Regulations

Licensing requirements vary by province. In British Columbia, the Mortgage Brokers Act requires private lenders who lend more than ten mortgages a year to be licensed as a mortgage broker. Private lenders in Alberta are not regulated, but mortgage brokers that represent private mortgage lenders must be licensed by the Real Estate Council of Alberta.

In Ontario, Private mortgage lenders doing business through mortgage brokers do not need to be licensed. Private lenders in Ontario who provide mortgages directly to the public must be licensed by the Financial Services Commission of Ontario (FSCO) and must display their FSCO license number on all materials and ads. They cannot advertise their services in Ontario. To get access to private mortgage lenders in Ontario, you must work with a licensed mortgage brokerage.

Private Mortgage Lenders

Alpine Credits operates in British Columbia, Alberta, and Ontario. Calling themselves an alternative rather than a replacement to the Big Banks, Alpine Credits touts that homeowners get approved, no matter their credit, age, or income.

Fees can quickly add up. A mortgage with an interest rate at 5.75% translates into an annual percentage rate (APR) of 13.1%, while a second mortgage with Alpine Credits at 8.75% is equivalent to an APR of 15.6%.

Prudent Financial Services requires at least 50% equity in your home, or for you to have other assets such as a paid-off luxury vehicle. Interest rates range from 5.75% to 9.9%.

Canada Lend offers mortgages for those with a credit score as low as 300 and offers second mortgages with an interest rate starting from 5.99%. Canada Lend works with private mortgage lenders in Toronto and across the GTA.

As of October 2020, Clover Mortgage offered 1-year and 2-year private mortgages with rates as low as 5.49%, and 6.99% on second mortgages.

Calvert Home Mortgage Investment Corporation offers a variety of products, from bridge financing to equity take out to house flipping. Interest rates range from 8.5% to 15.5% with additional fees of 1.5% to 4.0%. A minimum fee of $1,500 is charged. Terms are up to two years, and interest-payment only mortgages are available.

Guardian Financing serves the Greater Montreal Area, including the Island, South shore, North shore and West Island. Rates vary from 9% to 15%, with loan terms from 6 to 12 months and interest-only payments. Additional fees of 1% to 2.5% apply, with LTV up to 75%.

Victoria Financial operates within Quebec, with offices in Montreal, Laval, and Quebec City. Loan terms range from 3 to 36 months, and a maximum LTV of 75%. No minimum credit score is required.

Trillium Mortgage offers bad credit second mortgages with rates from 5.99% to 14.99%, with maximum LTV on first mortgages at 80% and on second mortgages at 90%.

Sun Mortgages offers private mortgages up to 75% LTV to those within certain cities and towns in Manitoba and Saskatchewan. No minimum credit score is required. Home appraisals are required.

Threshold Mortgage serves Winnipeg and the surrounding area. Loans are approved in 48 hours, and a sample rate given is 10.5%. Only 1 year terms are available.

Magnum Mortgage serves Alberta, with rates from 6% to 12%, depending on the amount of equity available.

Cliffton Capital operates within Quebec, namely Montreal, Hull-Gatineau, Quebec City, Trois Rivières, and Sherbrook. Terms are from 6 to 24 months, with only interest payments required.

TempBridge operates within Montreal and Laval, and offers short-term mortgages from 6 to 24 months. Additional fees range from 1% to 3%. Fees for construction financing ranges from 3% to 4%. Only interest payments are required.

Craigburn Capital operates within Nova Scotia and British Columbia, with offices in Halifax and Surrey. Rates for private mortgages start from 10%, with interest only payments available. Terms are usually 12 to 24 months, with a maximum LTV of 75%.

Private Lender Inc. operates across the country. Rates for first mortgages start from 4.99%, fees from 1%, and a maximum LTV of 80%. Rates for second mortgages start from 7.99% with fees from 5%.

Graysbrook Capital serves the Maritime Provinces, namely Nova Scotia, Newfoundland, New Brunswick and Prince Edward Island with offices in Moncton and Halifax. Graysbrook Capital guarantees a response within 24 hours and funding within 1 week.

RateCo operates across the country. RateCo charges a 2% broker fee, with a minimum fee of $2,000.

Based in Brampton, Dhugga Mortgages serves select locations within Ontario. Interest rates are as low as 5.49% for a first mortgage, and 7.49% for second mortgages with a maximum LTV of 75%. Interest-only payments are available, and no income is required.

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