What private lending is
Private mortgages come from individuals, mortgage investment corporations, and private funds rather than banks. Approval is based primarily on the property and the equity in it, not on the income formulas and credit thresholds that govern bank lending. Files are approved in days, not weeks.
The situations it solves
Bank said no but the equity is strong: bruised credit, unverifiable self-employed income, a divorce buyout on a deadline, a property the banks will not touch, tax or mortgage arrears, a purchase closing too fast for a bank's process, a construction project between draws. In each case, the private mortgage buys time to fix the underlying issue.
- Speed: approvals in days when timing is critical
- Flexibility: income and credit assessed differently
- Short terms: typically one to two years, open or low penalty
The honest costs
Rates run several points above bank pricing, plus lender fees and often broker fees of one to three percent, plus legal costs on both sides. On a one-year term solving a real problem, that is a price. On an indefinite term, it becomes a very expensive place to live.
When it is the wrong answer
If the plan is to carry private debt long-term with no path back to cheaper money, the math will grind down your equity. Private money without an exit is how equity-rich homeowners become equity-poor. Any broker who arranges private lending without discussing the exit is not doing the job.
How to use it safely
Insist on the exit plan in writing: what changes, by when, and what the next lender will need to see. Keep the term short, make payments on time every month, and use the breathing room to repair whatever forced you there. Done that way, private lending is a bridge. Done any other way, it is a treadmill.
Frequently asked questions
- Are private lenders regulated?
- Mortgage brokerages arranging them are licensed by FSRA, and disclosure rules apply. The lenders themselves range from large mortgage investment corporations to individuals, which is why working through a licensed brokerage matters.
- How fast can a private mortgage close?
- In urgent cases, within days. A week to ten days is typical once an appraisal or valuation is complete.
- Can I get a private first mortgage?
- Yes. Private lenders do both first and second mortgages. Firsts carry better pricing because the lender is first in line.