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How Private Mortgage Loans Are Structured:
What Borrowers Need to Know
If you're struggling to get approved for a traditional mortgage due to a low credit score, inconsistent
income, or an unconventional employment history, you're not alone. Many Canadians face similar
hurdles. Fortunately, private mortgage loans have emerged as a practical alternative, offering flexible
solutions for borrowers who don’t meet the strict criteria of major banks.
In this article, we’ll break down how private mortgage loans work, what their structure looks like, and
what borrowers—especially those seeking a bad credit mortgage—should keep in mind. We’ll also touch
on why private mortgage lenders in Ontario are becoming increasingly popular for people in complex
financial situations.
What Is a Private Mortgage?
A private mortgage is a home loan offered by individuals or private institutions rather than traditional
banks or credit unions. These lenders include private investors, mortgage investment corporations
(MICs), and companies that specialize in non-traditional financing.
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Private mortgages are most commonly used when a borrower doesn’t qualify for a mortgage from a
bank—usually due to bad credit, self-employment, low income, or the need for short-term financing.
Why Consider Private Mortgage Lenders in Ontario?
Ontario has one of Canada’s most active real estate markets, especially in urban hubs like Toronto,
Ottawa, Mississauga, and Hamilton. With rising home prices and tighter lending rules under the
mortgage stress test, more borrowers are turning to private mortgage lenders Ontario to secure
financing that meets their unique needs.
These lenders offer more flexibility than banks. They look beyond your credit score and focus instead on
the equity you have in the property, the location and condition of the home, and your overall financial
picture.
How Are Private Mortgage Loans Structured?
Understanding how private mortgages are structured will help you decide if this type of financing is right
for you. While each lender may vary slightly in their process, here are the key components:
1. Loan-to-Value Ratio (LTV)
One of the first things a private lender considers is the Loan-to-Value (LTV) ratio. This is the percentage
of your home's value you're looking to borrow.
• Most private mortgage lenders are comfortable with an LTV between 65% and 85%.
• The more equity you have, the better your chances of approval—even with bad credit.
If you're applying for a bad credit mortgage, your LTV becomes a major factor in securing financing.
2. Shorter Terms
Unlike traditional mortgages, which often have terms of 5 years or more, private mortgages are typically
short-term—usually ranging from 6 months to 3 years. These loans are often used as a bridge loan or
a stopgap until the borrower is able to refinance with a traditional lender.
This structure is ideal if:
• You're fixing your credit
• Waiting for a major source of income
• Planning to sell or renovate the property soon
3. Interest Rates
Because private lenders take on more risk (especially for a bad credit mortgage), the interest rates are
higher than those of traditional banks. Expect rates ranging from 7% to 12% or even more, depending on
your profile.
The good news? You get access to funds when no one else is willing to lend, which can be crucial for
maintaining your financial footing or taking advantage of a real estate opportunity.
4. Interest-Only Payments
Many private mortgage loans are interest-only, which means you only pay the interest during the term,
not the principal. While this keeps monthly payments lower, it’s important to have a plan in place for the
end of the term—whether that’s refinancing or repaying the full amount.
5. Fees and Closing Costs
Private mortgages often come with additional fees, including:
•
Lender fees (typically 1-3% of the loan amount)
• Broker fees (if you’re working through a mortgage broker)
•
Legal fees
• Appraisal fees
Make sure to ask for a full breakdown of costs upfront. Reputable private mortgage lenders in
Ontario will be transparent about all charges involved.
6. Flexible Qualification Criteria
This is where private lenders shine. They usually won’t require the same documents as a bank and may:
• Accept self-employed income
• Overlook recent bankruptcies or consumer proposals
• Focus on your property’s equity rather than your income or credit score
If you’ve been turned down by multiple banks, a private lender may be your best shot at securing a bad
credit mortgage and staying on track financially.
Risks to Consider
While private mortgages offer access and flexibility, they’re not without risks:
• Higher interest rates and fees can be expensive if the loan is held long-term
• Shorter terms mean you’ll need a clear exit strategy (e.g., refinance, sell, or repay)
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•
Limited regulation in the private lending space means you should always work with a licensed
mortgage professional and review contracts carefully
When Is a Private Mortgage the Right Choice?
A private mortgage might be suitable if:
• You’re facing temporary credit challenges
• You need fast funding
• You’re self-employed with inconsistent income
• You’re looking for a short-term solution before refinancing with a traditional lender
• You need a second or third mortgage and traditional banks won’t approve
Final Thoughts
Private mortgage loans can be a lifeline for those who don’t fit the traditional lending mold. Whether
you’re trying to recover from financial hardship or just need a short-term solution, private mortgage
lenders in Ontario offer flexible options that go beyond your credit score.
If you're struggling to qualify with a bank and need help accessing home equity, especially for a bad
credit mortgage, exploring private lending may be your next best step.
Just be sure to do your homework—understand the loan terms, fees, and risks involved. Better yet,
consult a licensed mortgage broker who can connect you with reputable lenders and help you create a
plan that protects your long-term financial health.
Source: https://mortgage-net.hashnode.dev/how-private-mortgage-loans-are-structured-what-
borrowers-need-to-know