Best Private Mortgage Lenders In Canada For May 2024

We reviewed 100 mortgage lenders that do business both online and in-person throughout Canada. The lenders we reviewed represent some of the largest mortgage lenders by volume, which includes banks, credit unions and online lenders. Lenders that don’t publicly display their interest rates online or operate in fewer than four provinces or territories were not eligible for review. Only lenders designated “private mortgage lenders” or “private mortgage investment companies” were ranked for this particular article.

Forbes Advisor Canada scores lenders based on criteria that have a meaningful impact on the cost of the mortgage, including borrower eligibility requirements, the variety of loan options and whether the lender had loan features that could affect the homebuying process either positively or negatively, such as prepayment privileges, a bona fide sales clause or whether a mortgage broker could act on your behalf with the lender once your mortgage is active (broker privileges).

The best lenders scored the highest based on the weighting in the following categories:

• Interest rate: 20%
• Loan options: 15%
• Timeliness: 15%
• Bonafide sales clause: 5%
• Broker privileges: 5%
• Prepayment privileges: 10%
• Penalties calculation type: 15%
• Customer service experience: 15%
• Lender discounts offered: 5 bonus points

Our focus on affordability, accessibility and key features that affect the homebuying process (like preapproval time and closing time) is what we consider reflective of consumers’ top priorities when comparing private mortgage lenders.

A private mortgage lender is a business, other than a bank or financial institution, that provides home loans. A lender may be a corporation, partnership or individual investors.

In Canada, most mortgages are lent by the big banks and a few other major lenders. These companies are able to offer the best mortgage rates and terms, but have strict underwriting criteria that can make it difficult for some people to qualify.

Private mortgage lenders, on the other hand, are free to set their own terms when it comes to qualification. Some of the more favourable terms you will find with private mortgage lenders include:

• Less stringent income verification. Private mortgage lenders may accept self-employment income, rental property income and other alternative income sources that don’t satisfy major lenders.
• Mortgages for bad credit. Whereas you will need a credit score of 680 or higher to qualify for the best mortgage rates and terms, private lenders may give you a mortgage with a credit score as low as 475.
• Higher debt service ratios. Most major lenders limit the amount you can spend on housing to 39% of your income and your total debt payments to 44% of your income. Private lenders may allow you to stretch one or both of these limits to 65% of your income.
• Extended amortization periods. In Canada, most new mortgages are paid back (amortized) over 25 years. Some major lenders will extend this up to 35 years, but private lenders may allow you to take up to 40 years to repay your mortgage.
• Interest-only options. Some private mortgage lenders will allow you to take out a mortgage and only pay the interest.

While you may qualify for a mortgage with a private lender when the bank turns you away, there are downsides to using such an option. Some of the drawbacks include:

• Higher interest rates. Most private mortgage lenders charge substantially higher interest rates than major lenders, commensurate with the level of risk that they’re taking by giving you money. After all, since you’re borrowing from them, you likely have a riskier credit profile
• Origination fees may apply. Some private mortgage lenders apply an additional fee, called a “lender fee” or “application fee” of up to 2% in addition to interest. For example, a 2% fee on a $500,000 mortgage would be $10,000. This fee may or may not be rolled into your mortgage itself.
• Mortgage insurance may be required. Most private lenders will require you to buy mortgage default insurance at your own expense. The cost depends on the insurer, the size of your down payment, as well as other risk factors, and can be as much as 6% of the loan amount.
• A larger down payment may be required. Especially if you’re taking advantage of relaxed qualifying standards, you may be required to make a larger down payment of up to 45%.
• You can lose your home if you default. Taking on a mortgage can be risky when you have bad credit, a lot of debt or shaky income. Private mortgage lenders have the same legal rights and responsibilities as major lenders and can exercise their power of sale or foreclosure if you fall behind on your payments.

Private mortgage lenders and mortgage investment companies are similar in that they both offer mortgages to Canadians independently of the big banks.

Mortgage investment companies are organizations that pool investors’ money to provide mortgages to Canadians. Investors can buy in or sell their stake at any time in a process that is completely seamless to you, the borrower. As such, a mortgage investment company’s underwriting rules need to satisfy its entire pool of investors and there’s not much leeway to make exceptions.

Private lenders, on the other hand, lend their own money directly to borrowers. Because of this, private lenders are free to evaluate each application on a case-by-case basis and there may be more flexibility for people in tricky situations.

Related: Best Mortgage Lenders In Canada

You should choose a private mortgage lender if you need a mortgage and have exhausted your other options, which may include major banks, other major mortgage lenders and so-called “B” lenders. You may fall into this category if:

• You’re self-employed. Major lenders don’t always look favourably on people who are self-employed and usually want to see several years of income statements to approve a mortgage. Private lenders are often more accepting of self-employment income.
• You have other alternative sources of income. Some private lenders will consider alternative income sources, such as rent from family members who will live in the home, spousal, child support or even the Canada Child Benefit.
• You have bad credit. A private mortgage lender may lend to you if you have bad credit or insufficient credit history to satisfy major lenders.

You may also want to look into a private lender if you are unable to afford a home or renew your mortgage because of affordability issues. Some of these issues could include:

• Your income is too low to qualify for a traditional mortgage. Major lenders will only give you a mortgage if the amount you pay for housing (mortgage payments, taxes and heating costs) is 39% or less of your income. Private lenders may let you spend up to 60% of your income on housing.
• You have too much other debt. Even if your housing cost is less than 39% of your income, banks also limit your total debt payments (including housing) to 44% of your income. Private lenders may let you spend up to 65% of your income on debt payments.
• You need a longer amortization period or interest-only payments. Sometimes you can meet other affordability criteria by extending the time over which you pay off your mortgage. Most major lenders cap this at 30 or 35 years, but private lenders may go up to 40 or allow interest-only payments.

Private mortgage lenders are also suitable when you qualify for financing but your property doesn’t. Scenarios could include:

• You need financing for an investment property. Private lenders are more likely to lend you money to buy an investment property and may even let you use 100% of the rental income to qualify.
• You want to buy a vacation home. While it’s possible that a major lender will give you a mortgage for a vacation property, private mortgage lenders may make exceptions for those who don’t meet the banks’ criteria.

You should also choose a private mortgage lender if one has offered you better terms than you can get from a major lender. Some private mortgage lenders target the prime lending market and may be able to give you a better interest rate or better terms than you can get elsewhere.

Related: How To Get A Mortgage