Private Mortgages in Canada: What to Know Before You Sign
Private Mortgages in Canada: What to Know Before You Sign
You could make every private mortgage payment on time and still find that your lender will not renew your mortgage.
That is why choosing a private mortgage requires more than comparing interest rates. You need to understand who is lending you the money, the full cost of borrowing, and how you plan to repay the mortgage.
In his accompanying video, Mission35 Mortgages founder Brian Hogben explains the questions borrowers should ask before signing. Here is a practical guide to reviewing your options.
What is a private mortgage?
A private mortgage is generally short-term financing that may be considered when a bank or other traditional lender cannot approve your application.
Borrowers may explore this option because of credit challenges, difficulty documenting income, an unusual property, or a financing deadline.
Private financing can help address a temporary problem, but it needs a realistic plan for what happens next. Ontario’s Financial Services Regulatory Authority highlights the importance of understanding the higher costs and developing an achievable exit strategy before committing. Read FSRA’s private mortgage guidance.
If you are exploring this type of financing, learn more about Mission35’s private mortgage options.
Understand who is lending you the money
Private mortgage lenders can have different structures. Two examples discussed in Brian’s video are Mortgage Investment Corporations and individual private lenders.
Mortgage Investment Corporations
A Mortgage Investment Corporation, commonly called a MIC, pools money from investors and lends it through mortgages.
An established MIC may have defined underwriting guidelines, administration, servicing, and renewal processes. However, those processes do not guarantee that your mortgage will be renewed.
Ask how long the lender has operated, what properties it finances, and how it handles borrowers who need additional time.
Individual or numbered-company lenders
A private mortgage may also come from an individual, a group of investors, or a corporation, including a numbered company.
The company name alone does not tell you whether the mortgage is suitable. Ask who is behind the lender, how experienced they are, and whether mortgage lending is an ongoing business or a one-time investment.
The goal is to understand the specific lender and the actual mortgage commitment.
Do not assume your mortgage will renew
Making your payments on time matters, but it does not guarantee a renewal.
As Brian explains, an individual lender’s circumstances can change. They may need their money back to buy a property, fund a business, or address a personal financial issue.
Before signing, ask:
What happens when the mortgage reaches maturity?
How does the lender decide whether to offer a renewal?
What fees could apply if it does renew?
What is my plan if a renewal is unavailable?
Start reviewing your mortgage renewal options well before the term ends.
Review every fee, not just the interest rate
A lower advertised interest rate does not necessarily mean a lower overall borrowing cost.
Depending on the mortgage, costs may include lender and brokerage fees, an appraisal, legal expenses, administration charges, title insurance, renewal fees, and discharge fees.
Ask for a written breakdown showing:
Each fee and who receives it.
When it must be paid.
Whether it is deducted from the mortgage advance or paid separately.
Which additional costs could arise during the term, at renewal, or when you repay.
FSRA has specifically highlighted the importance of clear fee disclosure, including renewal costs, so borrowers can understand and compare their financing. Read FSRA’s guidance on mortgage cost disclosure.
Know how much money you will actually receive
A $300,000 mortgage approval does not necessarily mean $300,000 will be available to you after closing.
Fees, existing debts, property taxes, legal expenses, or prepaid interest may be deducted from the advance.
Ask your broker to show you the total mortgage amount, every deduction, and the estimated net funds available. That final number needs to work for the problem you are trying to solve.
Check what it will cost to leave
Your exit costs matter just as much as your entry costs, especially if you expect to sell or refinance before the term ends.
Ask whether the mortgage is open or closed, whether a minimum amount of interest must be paid, and what happens if you repay early.
Understanding open mortgages and closed mortgages can help you frame the conversation, but your own agreement determines the applicable terms and charges.
Brian recommends asking this specific question:
“If I repay this mortgage three months after closing, what would I have to pay other than the outstanding principal and accrued interest?”
Get the answer in writing. Ask about prepayment penalties, minimum interest, lender fees, legal expenses, and discharge or administration charges.
Do not assume that “open” means there are no costs associated with paying out and discharging the mortgage.
Ask about legal fees and competing options
Make sure you understand both your own legal expenses and any lender legal expenses you are responsible for.
Ask whether the quoted amount is an estimate or a maximum, what could increase it, and whether additional legal costs apply when the mortgage is discharged.
Then ask your broker which other lenders were considered and why the recommended mortgage fits your situation.
Compare the total costs, payment, term, early repayment conditions, and renewal policy. A mortgage with a slightly higher rate may have other features that better fit your expected timeline.
Also ask whether your broker or brokerage has an ownership or financial interest in the lender, or receives additional compensation connected to the transaction.
Build your exit strategy before you sign
An exit strategy explains how you intend to repay the private mortgage.
If the plan is to move to another lender, identify what must change for you to qualify.
That might involve improving credit, documenting income, reducing debt, or resolving an issue with the property.
Discuss your mortgage refinancing options early, including the requirements, likely costs, and a backup plan if your timeline changes.
A plan to “figure it out later” leaves too much unanswered.
Your private mortgage checklist
Before signing, make sure you can answer these questions:
Who is lending me the money?
How experienced is the lender?
What happens when the term ends?
What are all the upfront and ongoing costs?
How much money will I actually receive?
What would I owe if I repaid early?
What are the legal and discharge expenses?
Which other mortgage options were considered?
Does my broker have a financial interest in the lender?
What is my exit strategy if a renewal is unavailable?
A private mortgage should address a financing need with a clear understanding of the costs and the next steps.
If you would like help reviewing your situation, contact Mission35 Mortgages to discuss your options, understand the proposed terms, and work through a realistic repayment plan.
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