Are Private Mortgages Safe? What Ontario Borrowers Need to Know

Why Borrowers Worry About Private Mortgages

If you have been researching private mortgages, you have probably encountered conflicting information. Some sources describe private lending as a lifeline for homeowners in difficult situations. Others paint it as a risky last resort. The truth sits somewhere in the middle, and understanding the distinction matters.

The concern is understandable. Private mortgages carry higher interest rates than bank mortgages, involve lenders you may not have heard of, and are often sought during stressful financial situations. When you are already feeling vulnerable, the idea of borrowing from a non-bank lender can feel uncomfortable.

However, the private mortgage market in Ontario is a regulated, established part of the broader lending ecosystem. Many Ontario homeowners use private mortgages as a short-term financial tool. The key is understanding how the system works, what protections exist, and how to tell a legitimate arrangement from a problematic one.

How Ontario Regulates Private Mortgage Lending

Mortgage brokerages arranging private mortgages in Ontario are licensed by the Financial Services Regulatory Authority of Ontario (FSRA) under the Mortgage Brokerages, Lenders and Administrators Act, 2006 (MBLAA).1

What FSRA Licensing Means for You

When you work with an FSRA-licensed mortgage brokerage to arrange a private mortgage, you receive several important protections:

• Mandatory cost of borrowing disclosure: Your broker must provide a written disclosure of every cost associated with the mortgage before you commit. This includes the interest rate, all fees, legal costs, and the total cost of borrowing over the term.
• Suitability obligation: FSRA requires brokers to assess whether the mortgage product is suitable for your situation. This means considering your ability to make payments and your plan for repaying or refinancing the loan.
• Complaints process: If something goes wrong, you can file a complaint with FSRA. The regulator has the authority to investigate and take enforcement action against brokerages that violate the rules.
• Professional standards: Licensed brokers must meet education requirements, and carry errors and omissions insurance.
• Record keeping: Brokerages must maintain detailed records of all transactions, which can be audited by FSRA.

What FSRA Does Not Cover

It is important to understand the limits of regulation. FSRA licenses the brokerage that arranges the mortgage, not necessarily the individual private lender providing the funds. Private lenders who lend their own money directly (without using a brokerage) may not be subject to the same oversight. This is one of the strongest reasons to always work through a licensed brokerage.

Legitimate Lenders vs. Predatory Lenders

The private lending market includes a wide range of participants. Understanding who is on the other side of your mortgage helps you assess the risk.

Legitimate Private Lenders

Signs of a Predatory Arrangement

Predatory lending does exist. Predatory arrangements typically share certain characteristics:

• Lending without regard for repayment ability: A lender who does not care whether you can make payments may be counting on taking your property through power of sale
• Hidden or excessive fees: Fees that are not disclosed upfront, that change after you commit, or that far exceed market norms
• Pressure to skip legal advice: Any lender or broker who discourages you from having a lawyer review the documents independently
• Blanket charges on multiple properties: Securing the mortgage against properties beyond the one being financed without clear justification
• Unreasonable default provisions: Terms that make it easy to trigger a default, such as requiring full repayment with minimal notice

The Role of a Licensed Mortgage Broker

A licensed mortgage broker serves as an intermediary between you and the lender. In the private mortgage market, this role is particularly important because the broker provides a layer of professional oversight and accountability.

What a Good Broker Does

1. Assesses your full situation before recommending any product, including whether a private mortgage is actually the right solution
2. Shops multiple lenders to find terms that fit your needs, rather than directing you to one lender regardless of fit
3. Provides full cost disclosure in writing, including all fees from every party involved
4. Discusses the exit strategy and helps you understand how you will transition to lower-cost financing. For more on this topic, see our guide to moving from a private mortgage to a bank.
5. Recommends independent legal advice and ensures you have time to review all documents with your lawyer before signing
6. Remains accountable through their FSRA licence, which can be revoked if they act improperly

How to Verify a Broker's Licence

You can verify any mortgage brokerage licence on the FSRA website by searching the public registry. Every licensed brokerage has a unique licence number. For example, Good Home Capital Inc. operates under FSRA Mortgage Brokerage Licence #12596. If a broker cannot provide their licence number or if the number does not appear in FSRA's registry, that is a significant red flag.

Common Misconceptions About Private Mortgages

Several persistent myths about private mortgages create unnecessary fear. Let us address the most common ones.

Misconception: Private lenders can take your home at any time

Private lenders have the same legal remedies as any other mortgage lender, and the same legal restrictions. In Ontario, a lender cannot simply seize your property without following the power of sale process set out in the Mortgages Act, R.S.O. 1990, c. M.40.2 The Act requires notice before a sale can proceed, which gives the borrower time to address a default. The exact notice periods and what they mean for your situation are a question for a lawyer, since they can depend on the circumstances.

Misconception: Private mortgages are unregulated

As discussed above, the brokerages arranging private mortgages in Ontario are regulated by FSRA. While individual private lenders face fewer direct regulations than banks, the brokerage layer provides meaningful consumer protection.

Misconception: Only desperate people get private mortgages

Private mortgages serve a wide range of borrowers. Self-employed professionals with strong income but unconventional documentation, real estate investors pursuing time-sensitive deals, homeowners consolidating high-interest debt, and people working through temporary credit challenges all use private mortgages as a strategic tool. The common thread is not desperation but rather a situation that falls outside the rigid criteria of traditional lenders.

Misconception: You will be trapped in private lending forever

A well-structured private mortgage includes a clear exit strategy, set before you borrow rather than worked out later. CMHC research on alternative-lender borrowers found that 67.28% switched to a conventional lender in the January to November 2021 period it studied.3 The key is working with a broker who builds the exit plan into the initial arrangement, not as an afterthought.

How to Protect Yourself as a Borrower

Taking a few straightforward steps significantly reduces the risk of a negative private mortgage experience.

Before You Commit

1. Verify the brokerage licence on the FSRA public registry
2. Get everything in writing before signing anything, including all fees, the interest rate, the term, renewal conditions, and any penalties
3. Hire your own lawyer to review the commitment letter and mortgage documents. Do not use the lender's lawyer for your own legal advice.
4. Understand the total cost of borrowing over the full term, not just the monthly payment
5. Ask about the exit strategy and make sure it is realistic given your circumstances
6. Compare offers from multiple brokers if possible. You are not obligated to accept the first offer you receive.

During the Term

• Make every payment on time. Payment history is the single most important factor in rebuilding your credit and qualifying for conventional financing at renewal.
• Keep records of every payment, every communication with the broker and lender, and every document related to the mortgage
• Start planning for the exit early. Do not wait until the last month of the term to think about refinancing.
• Monitor your credit to track your progress toward conventional lending qualification

Red Flags to Watch For

While most private mortgage transactions in Ontario proceed smoothly, knowing the warning signs helps you avoid the exceptions.

The best protection is an informed borrower. Take your time, ask questions, and never sign documents you do not fully understand. A legitimate broker welcomes your questions because they know their product can withstand scrutiny.