Private mortgages carry a stigma. Many people assume they are predatory, a last resort for people in desperate situations. The reality is more nuanced. Private mortgages are a legitimate financing tool that serves borrowers who fall outside conventional lending guidelines — and when used strategically with a clear exit plan, they can be the bridge to homeownership or the solution that saves a collapsing deal.
In Alberta, the private mortgage market is well-established and regulated. Understanding how it works, what it costs, and when it makes sense can turn a mortgage decline into an approval.
What Is a Private Mortgage?
A private mortgage is a loan secured by real estate and funded by private individuals or private mortgage investment corporations (MICs), not banks or credit unions. These lenders use their own capital and set their own qualification criteria.
Key differences from conventional mortgages:
- Equity-based lending — Approval is primarily based on property value and equity, not credit score or income
- Shorter terms — Typically 1 to 2 years, not 5 years
- Higher rates — Currently 7% to 12% in Alberta
- Higher fees — Lender fees of 2% to 4% of mortgage amount
- Faster approval — Can close in days if needed
Private lenders are not trying to hold your mortgage for 25 years. They are providing short-term financing with the expectation that you will refinance into conventional lending within 12 to 24 months.
Who Uses Private Mortgages?
Private lending serves several distinct borrower profiles:
Recent Credit Challenges
You have a consumer proposal, recent bankruptcy, or credit score below 550. Conventional lenders will not approve you, but you have equity in a property or a large down payment.
Example: You discharged a consumer proposal 8 months ago, rebuilt some credit, and have $120,000 saved for a down payment on a $500,000 home. B-lenders want to see 12+ months post-discharge. A private lender will approve you today based on your 24% equity position.
Self-Employed Income Issues
You run a profitable business, but your tax returns show minimal income because you write off aggressively. Conventional lenders want two years of tax returns showing strong declared income. You do not have that.
Example: You are a contractor earning $180,000 annually, but after business deductions, your taxable income shows as $65,000. This is not enough to qualify conventionally for the $600,000 home you want. A private lender looks at your bank statements showing consistent deposits and your 25% down payment and approves based on equity.
Time-Sensitive Deals
You have an accepted offer and a firm closing date in 10 days. Your bank approval fell through, and no conventional lender can turn around an approval fast enough.
Example: You were conditionally approved, but your lender declined at the last minute due to an appraisal shortfall. Closing is in 6 days. A private lender can fund in 72 hours if you have sufficient equity.
Property Issues
The property does not meet conventional lender standards — it needs repairs, has zoning complications, or is a non-standard property type.
Example: You are buying a mixed-use building with commercial space on the main floor and residential above. Banks do not like mixed-use. A private lender focuses on the property's value and your 30% down payment, not its use.
Bridge Financing Between Properties
You have sold your home, bought a new one, but the closing dates do not align. You need short-term financing to bridge the gap.
Example: Your new home closes March 1, but your current home does not close until April 15. A private lender provides a bridge loan for 6 weeks until your sale proceeds arrive.
Private Mortgage Rates and Fees in Alberta
Private mortgage costs are significantly higher than conventional mortgages, but they vary based on risk.
Interest Rates
Current private mortgage rates in Alberta (2025):
- Low risk (strong equity, decent credit): 7% to 9%
- Moderate risk (adequate equity, poor credit): 9% to 11%
- High risk (minimal equity, credit challenges, property issues): 11% to 14%
These are annual interest rates, but remember: private mortgages are short-term. You are paying this rate for 12 to 24 months, not 5 years.
Example:
- Mortgage amount: $400,000
- Rate: 9%
- Monthly payment (interest-only): $3,000
- Compare to 5% conventional rate: $2,333/month
- Difference: $667/month
Over 12 months, the higher rate costs you an additional $8,000. Over 24 months, $16,000. These are real costs, but if the alternative is losing your deposit and the home, it can be worth it.
Lender Fees
Private lenders charge upfront fees, typically 2% to 4% of the mortgage amount. This compensates them for the higher risk and the short-term nature of the loan.
Example:
- Mortgage amount: $400,000
- Lender fee: 3%
- Upfront cost: $12,000
This fee is almost always added to the mortgage balance, so you do not pay it out of pocket. It increases your total loan to $412,000.
Broker Fees
If you are working with a mortgage broker to arrange private financing (recommended), the broker may charge a fee of 1% to 2% of the mortgage amount. Some brokers receive compensation directly from the lender and do not charge the borrower separately — clarify this upfront.
Legal and Appraisal Costs
Just like any mortgage, you will pay:
- Legal fees: $1,000 to $1,500
- Appraisal: $300 to $500
- Title insurance: $250 to $400
Equity Requirements: How Much Do You Need?
Private lenders are equity-focused. The more equity you have in the property, the lower your rate and the easier your approval.
Loan-to-Value (LTV) Limits
Private lenders typically lend up to 75% to 80% LTV on residential properties. This means you need at least 20% to 25% equity.
Example:
- Property value: $500,000
- Maximum private mortgage at 75% LTV: $375,000
- Minimum equity required: $125,000 (25%)
First position vs second position:
A first-position mortgage is the primary mortgage registered on the property. If you default, the first-position lender gets paid first from the sale proceeds.
A second-position mortgage sits behind a first mortgage. These are riskier for the lender, so rates are higher (10% to 15%) and LTV limits are lower (combined first and second cannot exceed 80% LTV in most cases).
Purchase vs Refinance
Private lenders are more comfortable with refinances than purchases, because they can see that you already own the property and have a track record of making payments.
Purchase: You are buying a $500,000 home with a $125,000 down payment (25%) and need a $375,000 private mortgage. This is doable, but the lender will scrutinize the purchase price and appraisal closely.
Refinance: You have owned a $500,000 home for 5 years, your mortgage balance is $280,000, and you want to refinance to $375,000 to pull out $95,000 for debt consolidation. The lender sees $125,000 in equity and a history of payments. This is a stronger application.
The Approval Process: What to Expect
Private mortgage approvals are faster and simpler than conventional approvals, but they still require documentation.
Required Documents
- Property appraisal — The lender needs to confirm the property's value
- Down payment verification — Bank statements or proof of where your down payment is coming from
- Photo ID and proof of income — Even though approval is equity-based, lenders want to see you have some income or means to make payments
- Credit bureau — They will pull your credit, but a low score is not an automatic decline
- Property tax assessment and status — Confirmation that property taxes are current
Timeline
- Application to conditional approval: 24 to 48 hours
- Appraisal ordered and completed: 3 to 5 days
- Final approval to funding: 2 to 5 days
Total timeline: 7 to 10 days in normal circumstances, but I have closed private mortgages in 72 hours when the situation was urgent and the equity position was strong.
Underwriting Focus
Private lenders ask three main questions:
- Is there enough equity to protect us if the borrower defaults? (LTV ratio)
- Is the property marketable if we have to foreclose and sell it? (Location, condition, type)
- Does the borrower have a realistic exit strategy to refinance out within 12-24 months? (Income stability, credit rebuild plan)
If the answers are yes, yes, and yes, approval is likely.
The Exit Strategy: Your Plan to Refinance Out
The golden rule of private lending: always have an exit strategy. You should never enter a private mortgage without a clear, realistic plan to refinance into conventional lending within 12 to 24 months.
Common Exit Strategies
Credit repair and rebuilding
- You have a consumer proposal discharged in 6 months, poor credit today, but a stable job
- You get a private mortgage for 18 months
- You rebuild credit with two secured credit cards, making perfect payments
- After 18 months, your credit score is 640+, your proposal is discharged 12+ months, and you qualify with a B-lender at 6.5%
Income stabilization
- You are self-employed with inconsistent income documentation
- You get a private mortgage for 12 months
- You work with an accountant to prepare proper financial statements and clean up your tax filings
- After 12 months, you qualify with a B-lender using stated income or improved documentation
Property appreciation
- You bought at 75% LTV with a private mortgage because the property needed minor cosmetic work
- You complete renovations, property value increases
- After 12 months, you refinance with a conventional lender at 65% LTV based on the improved value
Sale and purchase
- You took a private mortgage to bridge a purchase while waiting for a previous property to sell
- Your old property sells within 90 days, you use the proceeds to pay out the private mortgage
Income increase
- You started a new job but were on probation, so conventional lenders would not approve you
- You get a private mortgage for 12 months
- After probation ends and you have 6+ months of stable employment, you refinance conventionally
What Happens If You Cannot Refinance Out?
If you reach the end of your term and cannot qualify for conventional financing, you have three options:
-
Renew with the private lender — Most private lenders will offer a renewal if you have been making payments on time. Expect another lender fee (1% to 2% this time, smaller than the original 3% to 4%).
-
Switch to another private lender — Shop around; another private lender may offer better terms. You will pay another set of lender fees and legal costs.
-
Sell the property — If you cannot afford to keep paying private rates and cannot qualify conventionally, selling may be the best option. Hopefully the property has appreciated and you walk away with your equity.
The worst outcome is defaulting and going into foreclosure. This costs you your equity, destroys your credit further, and should be avoided at all costs.
When Private Lending Makes Sense
Private mortgages are not for everyone, but they make sense in specific situations:
You Have Equity But Poor Credit
If you have $150,000 saved or $150,000 in equity in a property, but your credit score is 520 due to a past bankruptcy, private lending lets you access financing that your equity position justifies.
Time Is Critical
If you need to close in days, not weeks, and conventional lenders cannot move fast enough, private lending saves the deal.
The Property Is Non-Standard
If you are buying a property that conventional lenders will not touch (rural land, fixer-upper, unique property type), private lending may be your only option.
You Have a Clear 12-Month Exit Plan
If you know your situation will improve in 12 months (consumer proposal discharge, credit rebuild, employment stabilization), private lending is a short-term bridge to conventional financing.
When to Avoid Private Lending
Private mortgages are not appropriate in these situations:
You Have No Exit Strategy
If you have poor credit, unstable income, and no plan to improve either, a private mortgage just delays the inevitable. You will pay high rates for 12 to 24 months and then be unable to refinance. This is a recipe for foreclosure.
You Are Already Financially Stressed
If you are barely affording rent at $1,800/month and a private mortgage payment would be $3,200/month with no clear plan to reduce it, you are setting yourself up for failure.
The Numbers Do Not Work Long-Term
If your only path to affordability requires permanent private financing at 10%+, you cannot afford the property. Walk away.
Private Lending in Calgary: Market Conditions
Alberta has a well-developed private lending market. Calgary specifically has multiple private lenders and MICs actively funding deals.
Advantages of Alberta's Private Market
- No land transfer tax — Saves you thousands on closing costs, leaving more equity in the deal
- Strong property values — Calgary's real estate market is stable and liquid, which private lenders like
- Competitive rates — Multiple private lenders means better rate competition than in smaller markets
Typical Calgary Private Mortgage
- Property value: $550,000
- Down payment/equity: $140,000 (25%)
- Private mortgage amount: $410,000 (75% LTV)
- Interest rate: 8.5%
- Lender fee: 3% ($12,300 added to mortgage)
- Actual funded amount: $422,300
- Monthly payment (interest-only): $2,992
- Term: 18 months
After 18 months, if the borrower has rebuilt credit to 620+ and stabilized income, they refinance with a B-lender at 6.5%, reducing their payment to approximately $2,550/month.
FAQ: Private Mortgages in Alberta
Q: Will a private mortgage hurt my credit? A: Private mortgages are reported to credit bureaus. If you make your payments on time, it helps your credit. If you miss payments, it damages your credit significantly.
Q: Can I get a private mortgage with no income? A: Some private lenders will approve with minimal or no verifiable income if your equity position is very strong (35%+ down) and you can show assets or other means of making payments. But this is rare and expensive.
Q: Are private mortgages legal and regulated in Alberta? A: Yes. Private mortgages are legal and subject to Alberta's consumer protection laws. However, individual private lenders are not regulated the same way banks are. Work with a licensed mortgage broker who vets private lenders.
Final Thoughts
Private mortgages are expensive, but they are not predatory if used correctly. They serve a real purpose: providing financing to borrowers who have equity but cannot qualify conventionally due to credit, income, or timing issues.
The key is having a clear, realistic exit strategy. If you know you will discharge your consumer proposal in 8 months, rebuild your credit, and qualify with a B-lender within 18 months, a private mortgage is a smart bridge. If you have no plan and no path to improvement, private lending is dangerous.
In Calgary, with strong property values and a competitive private lending market, rates and terms are reasonable compared to other provinces. If you are facing a mortgage decline or a time-sensitive deal, private lending may be the solution — just make sure you understand the costs and have a plan to refinance out.
For more context on deal rescue and alternative lending strategies, see the Complete Guide to Mortgage Deal Rescue in Calgary.
Questions about private mortgages or alternative lending options? Contact Jay: jaysinghmortgage@gmail.com or 403.409.1126.
