Private mortgages work quite differently from a loan through a major bank, and they are not the right fit for everyone. The money comes from individuals or investment groups rather than a large institution, and the decision rests mainly on the equity in your property rather than on your income or credit score. Borrowers often turn to private financing in Alberta and elsewhere when a bank has said no, usually because of self-employment income or a temporary credit issue. Used carefully, and with a clear plan to move on from it, private financing can be a useful bridge. As a broker I arrange these mortgages with private lenders, and understanding how they work will help you weigh whether one makes sense for you.
Why the Rates Are Higher
Private lenders take on more risk, so their rates sit above what a bank charges, often by a few percentage points. Many private mortgages are also interest only, which keeps the monthly payment lower but means the balance does not go down over the term. That trade-off can be reasonable for a short period while you sort out credit or sell another property, but it is worth running the full cost before you commit rather than looking at the rate alone.
The Fees to Ask About
Beyond interest, private financing usually involves lender, broker, and legal fees to set up the file, and these are often deducted from the advance at closing rather than paid separately. Ask for a written breakdown of every cost early so there are no surprises when the funds arrive. Comparing the total cost, not just the headline rate, is the fairest way to judge one offer against another.
These Are Short-Term Solutions
A private mortgage is not meant to run for twenty-five years. Most terms are twelve to twenty-four months, long enough to give you time to improve your situation and then move to a mainstream lender. Because the timeline is short, the plan for what comes next matters as much as the mortgage itself.
Equity Matters More Than Income
Private lenders focus on the value of the property and how much equity sits behind the loan, commonly lending up to around seventy-five percent of what the home is worth. If you have solid equity, approval can be quicker and less document heavy than a bank, which is often the point. Past credit blemishes carry less weight here than they would with a federally regulated lender.
Have Your Exit Plan Ready
Before you sign, you should know exactly how the loan ends. Common exits include refinancing to a bank once your credit has recovered, selling the property, or completing renovations that let you list at a higher price. Whatever the route, it is worth working on it from day one rather than near the maturity date. A clear exit is what keeps a short-term solution from becoming a problem.
Read the Agreement With a Lawyer
Private mortgage agreements can carry terms you will not see in a standard bank commitment, including renewal conditions and prepayment rules. Have an independent real estate lawyer review the full agreement before you sign, and do not rush that step to access funds a little faster. A careful read now can save real cost and stress later.
A Sensible Way to Use It
Private financing can open a door when the usual options are closed, but the higher cost and short timeline mean every step deserves care. Know the full cost, keep your exit plan in view, and have a lawyer review the paperwork. If you would like to talk through whether a private mortgage fits your situation, I am licensed in British Columbia, Alberta, and Ontario and glad to help. You can learn more on my private mortgage page.