Private lending happens when an individual, a corporation, or an investment entity lends money directly to a borrower instead of a bank or credit union. In Ontario most private loans are secured against real estate, which means the loan is registered as a mortgage on the borrower’s property. People turn to private lenders for three main reasons. They need money fast, a bank has turned them down, or their income does not fit a bank’s checklist.
We arrange and review private mortgages for clients across the province every month, so this guide reflects how these deals actually work, what the law requires, what they cost, and what happens if a borrower cannot pay.
Private lending is a real part of the Ontario market, not a fringe option. In 2024 lenders registered 65,233 private residential mortgages in the province, close to 15.8 percent of all mortgages and roughly 32 billion dollars in value, according to the Financial Services Regulatory Authority of Ontario. A decade earlier that figure sat near 11 billion dollars, so the sector has grown sharply.
What is private lending in Ontario
Private lending covers any loan funded by someone other than a federally regulated bank. The lender might be one person with savings to put to work, a group of investors pooling money through a mortgage investment corporation, or a private mortgage company that lends as its business.
Most private loans in Ontario sit behind a registered mortgage. That single fact shapes everything that follows, because the rules for arranging, disclosing, and enforcing a mortgage decide how the whole deal runs.
Borrowers who commonly use private money include the following.
- Real estate investors who need short term or bridge financing to close before a sale completes.
- Self employed owners and commission earners whose income looks irregular on paper.
- Newcomers to Canada who have not yet built a domestic credit history.
- Homeowners consolidating debt or covering tax arrears who need to act quickly.
- Buyers who must close fast and cannot wait for a bank’s timeline.
Why borrowers choose a private lender
Approval rests on the property, not only your credit
Private lenders look first at the property and the equity behind it. They weigh the loan to value ratio, meaning the loan measured against the appraised value of the home. Many private lenders fund up to roughly 75 to 80 percent of value on a strong residential file, and less when the risk is higher. A thin credit score that stops a bank cold often does not stop a private lender if the equity is there.
Funding in days, not weeks
A private lender can review a file and advance funds in a matter of days. That speed matters when you are closing a purchase, paying property tax arrears, or stopping a power of sale before it goes further.
Terms you can shape
Private deals often allow interest only payments, lump sum payouts, and repayment schedules built around your situation. Banks sell standardized products with far less room to negotiate.
A bridge when the bank says no
Many borrowers use a private mortgage as a short term bridge. They borrow privately now, fix the credit or income problem over the next year, then move back to a bank. A clear plan to exit the private loan is the difference between a useful tool and an expensive trap.
What private lending costs and where the risks sit
Higher interest and lender fees
Private rates run well above bank rates because the lender takes on more risk. On top of interest you usually pay a lender fee and a broker fee, often somewhere between 1 and 4 percent of the loan combined, plus the cost of an appraisal and legal work. Add these up before you decide, because the headline rate is only part of the price.
Short terms and renewal pressure
Private mortgages usually run from six months to two years, and a one year interest only term is common. When the term ends you must repay the loan, renew it, or refinance. If rates have moved against you or your situation has not improved, that renewal can cost more or may not be offered at all. This is why an exit strategy is not optional.
There is a legal ceiling on interest
Section 347 of the Criminal Code caps the interest a lender can charge. As of January 1, 2025 the ceiling is 35 percent on an annual percentage rate basis, lowered from the old limit of 60 percent on an effective annual rate. For a typical consumer private mortgage this matters more than it looks, because fees, bonuses, and penalties all count as interest in that calculation. Larger commercial loans are treated differently, and loans above 500,000 dollars to a company fall outside the cap. You can read the provision on the federal Justice Laws website.
Power of sale if you fall behind
A private mortgage is enforceable like any other mortgage. If you default, the lender can sell the property under the power of sale process. The section below sets out how that works and how much time you have.
Borrowers fixate on the interest rate. The fees, the short term, and the renewal that arrives a year later are where the real cost hides. Read the whole commitment, not just the rate line, before you sign anything.
Demet Altunbulakli, Founding Lawyer, Insight Law Professional Corporation
Private lenders compared with banks
Private lenders and banks take very different approaches. The table below lays out the practical differences so you can see which fits your situation.
| Feature | Private lender | Bank or credit union |
| Approval time | Days, sometimes a week or two | Weeks to a couple of months |
| Main focus | Property value and equity | Credit score and stable income |
| Flexibility | Custom terms, interest only options | Standardized products |
| Interest and fees | Higher rate plus lender and broker fees | Lower rate, fewer fees |
| Typical term | Six months to two years | One to five year terms, long amortization |
| Best suited to | Short term, time sensitive, harder files | Long term financing for qualified borrowers |
| Documentation | Lighter, equity driven | Extensive income and credit checks |
How private lending is regulated in Ontario
Private lending in Ontario is regulated, despite a common belief that it operates in a grey zone. The oversight simply works differently from the federal rules that govern banks.
You deal through a licensed mortgage broker or agent
Under the Mortgage Brokerages, Lenders and Administrators Act, 2006, anyone who carries on the business of dealing in or arranging mortgages must hold a licence from the Financial Services Regulatory Authority of Ontario, unless an exemption applies. A private individual who lends their own money on the occasional mortgage is generally exempt and does not need a personal licence. To reach private money, though, a borrower normally works with a licensed Level 2 mortgage agent or a mortgage broker, and that licensed person carries the duty to assess whether the deal suits you and to disclose it in writing. You can verify any broker, agent, brokerage, or administrator on the FSRA public registry before you commit.
So the idea that every private lender must be licensed is not accurate. The licence requirement falls mainly on the brokers, agents, brokerages, and administrators who arrange and manage the loans, and on those who lend as a business. You can read the statute itself on the Ontario government law website.
What the broker must disclose to you
Before you sign, the licensed brokerage must give you written disclosure of the interest rate, the annual percentage rate, every fee, the term, the payment schedule, and any penalty for early payout or missed payments. This is your protection against hidden terms. If something is not in writing, ask why before you proceed.
How a private mortgage comes together
A private mortgage moves through a predictable sequence. Knowing the steps helps you spot where to slow down and ask questions.
- You apply and the lender reviews the property, the equity, and your plan to repay or refinance.
- An appraisal sets the value, and the lender fixes the loan to value ratio it will accept.
- You receive a commitment or term sheet setting out the rate, the fees, the term, and the security.
- A lawyer reviews the documents, and a borrower in a vulnerable position should get independent legal advice.
- The mortgage is registered on title, and the funds are advanced.
This is the point where a lawyer earns their fee. We confirm the security is properly registered, check the numbers against what the lender promised, and explain the parts of the commitment that borrowers most often miss. If you want a second set of eyes, our real estate team reviews private mortgage commitments before signing, and we provide independent legal advice where a lender requires it.
What happens if a borrower cannot pay
Most private mortgages in Ontario are enforced through power of sale under the Mortgages Act, rather than through court foreclosure. Power of sale lets the lender sell the property without a full court case, but the lender must follow strict steps and timing.
The default must continue for at least 15 days before the lender can issue a Notice of Sale. Once that notice is served, the borrower gets a redemption period, usually 35 days under a typical contractual power of sale, to pay the arrears and costs and bring the loan back into good standing. During that window the lender cannot complete a sale. The lender must also act in good faith and make real efforts to get fair market value, not simply dump the property.
After a sale, the money is applied in order. The costs of the sale come first, then the mortgage debt, then any later registered claims, and any surplus must be returned to the borrower. The full power of sale rules sit in the Mortgages Act on the Ontario government law website.
A private mortgage is enforceable like any other. If you fall behind, the clock under the Mortgages Act starts fast. The moment you see trouble coming, get advice, because options shrink once a Notice of Sale lands on your table.
Demet Altunbulakli, Founding Lawyer, Insight Law Professional Corporation
Secured and unsecured private loans
A secured loan is backed by collateral. With real estate that collateral is a mortgage registered on title. With other property, such as equipment or a vehicle, the lender registers its interest under the Personal Property Security Act so its claim is protected if the borrower defaults. An unsecured loan has no collateral behind it, so the lender relies only on the borrower’s promise to pay.
| Feature | Secured loan | Unsecured loan |
| Collateral | Backed by property or other registered security | No collateral pledged |
| Risk to the lender | Lower, the asset can be sold on default | Higher, recovery depends on suing the borrower |
| Interest rate | Usually lower because risk is lower | Usually higher to offset the risk |
| Typical loan size | Larger, tied to the value of the asset | Smaller |
| On default | Lender enforces against the asset | Lender must pursue a court judgment |
For private real estate lending in Ontario the loan is almost always secured by a mortgage. The registered security is what makes the lender willing to fund a file a bank would decline.
How to become a private lender in Ontario
Lending privately can produce steady returns, but it carries real legal duties. If you are thinking about lending your own funds, keep the following in mind.
- Work through a licensed mortgage brokerage to source and document deals, which keeps you onside the rules and adds a layer of due diligence.
- Stay within the legal interest ceiling, and remember that fees and bonuses count toward that 35 percent annual percentage rate calculation.
- Register your security properly, whether that is a mortgage on title or a registration under the Personal Property Security Act.
- Have a lawyer prepare or review the loan documents so the terms are enforceable if the borrower defaults.
- Assess each property and borrower carefully, since your main protection is the equity behind the loan.
If you plan to lend as a business or pool money from other investors, the rules become more involved, and you should speak with a business lawyer before you start.
Frequently asked questions
Do private lenders need a licence in Ontario?
Not always. An individual who lends their own money on the occasional mortgage is generally exempt from licensing. The licence requirement under the Mortgage Brokerages, Lenders and Administrators Act, 2006 falls mainly on the brokers, agents, brokerages, and administrators who arrange and manage mortgages, and on those who lend as a business. As a borrower, you normally reach private money through a licensed Level 2 mortgage agent or broker, and you can check their status on the FSRA registry.
How much interest can a private lender charge?
Section 347 of the Criminal Code sets the ceiling. Since January 1, 2025 that ceiling is 35 percent on an annual percentage rate basis for most loans, down from the previous 60 percent effective annual rate. Fees, bonuses, and penalties count as interest in that calculation, so the true rate can be higher than the number on the first page. Larger commercial loans follow different limits.
How long is a typical private mortgage term?
Most private mortgages run from six months to two years, and a one year interest only term is common. Because the term is short, you should have a clear plan to repay or refinance before it ends, since renewal is not guaranteed.
What happens if I default on a private mortgage?
The lender can enforce through power of sale under the Mortgages Act. The default must continue at least 15 days before a Notice of Sale issues, and you then get a redemption period, usually 35 days, to pay the arrears and costs and reinstate the loan. If you cannot, the property can be sold, and any surplus after the debt and costs is returned to you.
Do I need a lawyer for a private mortgage?
Yes, and on a private deal it is genuinely worth it. A lawyer reviews the commitment, confirms the security is registered correctly, checks the fees against what you were promised, and flags terms that could hurt you later. Some lenders also require you to obtain independent legal advice before they advance funds.
How do I check that a lender or broker is legitimate?
Use the FSRA public registry to confirm the broker, agent, or administrator holds a current licence and has no recorded discipline. Ask for the full written disclosure of rate, fees, and penalties, and have a lawyer review it. If anyone pressures you to sign without that paperwork, treat it as a warning sign.
The bottom line
Private lending gives Ontario borrowers a faster, more flexible route to financing when a bank cannot help. That flexibility comes at a price, namely higher rates, real fees, short terms, and a fast enforcement process if you fall behind. The borrowers who do well treat a private mortgage as a short bridge with a clear exit, read the whole commitment, and get a lawyer involved before they sign.
The information provided above is of a general nature and should not be considered legal advice. Every transaction or circumstance is unique, and obtaining specific legal advice is necessary to address your particular requirements. Therefore, if you have any legal questions, it is recommended that you consult with a lawyer.
