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Private mortgages in BC: how they work and when they make sense

When the bank can't help and you have real equity, a private mortgage can be the bridge that gets you back on track. Here's the honest version: what it costs, when it fits, and how we make sure there's a way out.

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Quick Takeaways

The short version, before you read the rest:

  • ·A private mortgage is a short-term, equity-based loan from a private lender, used when a bank (A) or alternative (B) lender can't get the deal done in time or in the shape you need.
  • ·Private lenders lend on the property and your equity, not your income or credit. That's why they can move in days and skip most income documents.
  • ·It's expensive relative to an A or B mortgage, and it's meant to be short-term. If you can reasonably get a cheaper solution, you should. It earns its place when there's a real reason and a clear way out.
  • ·The exit strategy comes first. We won't set one up without a realistic plan to refinance into a cheaper mortgage, usually inside a year or two.
  • ·How it's priced comes down to the file: the rate and fees move with loan-to-value, credit, first or second position, the property and its location, and whether you're paying out an existing private lender.
  • ·Private lenders in BC are mostly institutional (MICs), regulated and long-established. Coming through a broker gets you the right lender for your file, chosen from dozens rather than guessing.

A private mortgage is a short-term loan secured against your home by a private lender, used when a bank (an A lender) or an alternative lender (a B lender) can't approve you in the time or the shape you need. Instead of underwriting your income and credit the way a bank does, a private lender looks mainly at the property, your equity, and your plan to pay the loan off or refinance out. That makes it fast and flexible, and also more expensive, which is why it's a tool for a specific job, not a first choice.

A, B, and C

Private, alternative, prime: what a private mortgage actually is

There are three broad tiers of mortgage lender in Canada, and people mix them up constantly:

  • ·Prime (A) lenders are the banks, credit unions, and monoline lenders. Best rates, strictest rules. They underwrite you: your income, your credit, your ratios.
  • ·Alternative or subprime (B) lenders are still institutional, but more flexible. They're built for borrowers who don't fit prime: self-employed income that's hard to prove, bruised credit, higher debt ratios. Rates are higher than an A lender, but these are established lenders with real guidelines.
  • ·Private (C) lenders are what this page is about. They lend on the property and the equity first, not on you. That's the whole difference. An A or B lender mitigates risk based on the borrower. A private lender mitigates risk based on the property.

So “alternative” and “private” are not the same thing, even though the words get used interchangeably. A B lender is a looser bank. A private lender is a different animal: property-first, short-term, and priced for the risk it's taking on.

When It Fits

When a private mortgage actually makes sense

I'll be straight with you: a private mortgage is expensive, and it's usually not the goal. If you can reasonably qualify for something cheaper, an A or a B lender, you should take it. A private mortgage earns its place when there's a real reason behind it: an upside to capture, a bad situation to climb out of, or a short window you can't miss. When that's the case, and there's a clear way back out, it's one of the most useful tools I have.

Two real files show what “a good reason” looks like.

Based on a real file

Clearing debt after a health setback

A client had been ill for a few years. Her income stopped for a stretch, the debt piled up, credit cards and vehicle loans, and her credit took a hit. But she had a lot of equity: her home was worth about $1,000,000 with only a $225,000 first mortgage. Her bank mortgage was up for renewal in about nine months, and she was on her way back to work.

We arranged a private second mortgage of about $150,000. $125,000 cleared all the high-interest debt, and $25,000 gave her breathing room for a few months while the paycheques started up again. Clearing the debt improved her cash flow by thousands a month, and as the balances came off, her credit score climbed back up.

When her first mortgage came up for renewal, we consolidated the first and the private second into a single new mortgage, and secured a better rate than her existing lender had even offered her. She came out cash-flow positive, clear of the consumer debt, and back with an A lender. The private mortgage was the bridge that made the recovery possible.

At $225,000 + $150,000 owing on a $1,000,000 home, she was at roughly 37% loan-to-value. That equity cushion is exactly why a private lender was comfortable, even with income and credit temporarily off.

Based on a real file

Speed for a strong borrower

Not every private mortgage is about distress. A high-net-worth client with a lot of business holdings was buying a $2,200,000 property on a three-week closing. He could have qualified with an A or B lender, but it would have meant two weeks of compiling documentation across all his holdings, and he simply didn't want to deal with it on that timeline.

We placed a $1,300,000 private mortgage at a sub-6% ratewith almost no lender fees, because the file was strong and the equity was there. One-year term. Now that the deal has closed and he has time, we're moving him to an A lender later this year.

That file breaks the myth that private always means desperate and sky-high. When the property and the borrower are strong, private can be fast, inexpensive, and simply convenient.

A $2,200,000 purchase, a $1,300,000 private mortgage at sub-6%, a one-year term, then straight to an A lender. A strong borrower and real equity are exactly why the rate came in that low.

The Non-Negotiable

The exit strategy comes first

Before I'll put anyone in a private mortgage, one thing has to be true: there's a clear exit. Without a realistic plan to refinance into a cheaper mortgage, usually inside a year or two, a private mortgage just delays the inevitable and makes the situation worse. A solid exit strategy is mandatory.

The lender wants the same thing. A good private lender does not want you stuck on their books for five years, and they really don't want you to foreclose. A foreclosure is a worse return for them and it's bad for business. Their incentives are lined up with yours: they make money when you improve your situation and refinance out.

So my gate is simple. We've explored the cheaper options and ruled them out. There's a genuine improvement to be made in the next year or two. And there's a real exit. If all three are true, it's a go. If they're not, I'll tell you to wait or go another way.

The Cost

What does a private mortgage cost?

As with most things in mortgages, the answer is: it depends. Private mortgage pricing is risk-based. The main things that push the cost up or down:

  • ·Loan-to-value: the more you borrow against the home's value, the higher the rate.
  • ·Credit: weaker credit means rate premiums, or a lender who specializes in more distressed files.
  • ·Position: a second mortgage sitting behind your existing first costs more than a first.
  • ·Location: rural and remote properties carry higher rates, because they're harder for the lender to sell if things go sideways.
  • ·Property type and size: ultra-high-end properties and less liquid property types (some condos and townhomes) can carry premiums versus a single-family home, where the resale market is deepest.
  • ·Paying out an existing private lender: counterintuitive but fair. If you're refinancing out of one private mortgage into another, you didn't hit your last exit, so there's less track record that you'll hit this one, and that gets priced in.

As a rough picture, and this moves, so treat it as illustrative: private mortgage rates run from around 5.5% up into the 14 to 15% range for the riskiest files, like fix-and-flips. Lender fees range from nothing up to about 3% of the loan. At Landmark, our broker fee generally matches the lender's fee, and where the lender charges nothing, we charge a standard 1% of the mortgage amount.

That sounds expensive next to a bank, because it is. But the question is never “is this cheap.” It's “does this cost buy me something worth more than it”: clearing high-interest credit card debt, catching a time-sensitive purchase, protecting a bigger financial move. When the answer is yes and the exit is clear, the math works.

The Lenders

Who are private lenders, and are they safe?

The word “private” makes people picture a guy with a briefcase and a lien. The reality is more boring, and much safer. Most of the private lenders we work with are Mortgage Investment Corporations (MICs): pooled, professionally managed funds, many with decades in the business, some 40-plus years, some backed by billion-dollar institutions. They have policies, underwriting standards, and multiple funds behind them. They aren't going anywhere.

They're also regulated. Private lending has looser guidelines than a bank, but the lenders and the brokers who place with them answer to the same governing bodies, with real compliance and scrutiny. It's institutional lending with more flexibility.

There are individual private lenders too, through other channels, for genuinely unique or challenging files. We don't work directly with individual investors, but those solutions have their place when nothing else fits.

Here's where coming through us matters most. We place with dozens of private lenders, so we know who's solid, who closes on time, who prices fairly, and who fits your deal. That access gets you the right lender for your file, instead of cold-calling names off the internet and hoping. Everyone in this space is good at their own thing, and matching your file to the right one is most of the job.

Speed and Qualifying

How fast, and how do you qualify?

Fast. A private lender can often fund in days, not weeks. Three weeks is actually a long timeline in this world. That speed is the whole point when you're up against a closing date the bank can't meet.

Qualifying is different too, because it's equity-based. Instead of grinding through income ratios, a private lender looks at four things: the property, your equity position, how you'll service the loan, and your exit strategy. A lot of the time we don't need full income documentation at all. It's stated-income underwriting with a loose picture of your assets. It's the same basic questions a bank asks, just at a much looser scale, with the property doing more of the work. Straightforward, and equity-first.

There's also an intangible that matters more than people expect: the story. A private lender wants to understand what happened, why a private mortgage is the right move, and how it gets you back on track. A clear, sensible story can make a deal, and a weak one can break it, even when the numbers look fine.

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How to reach us

The fastest way to get started is a 20-minute call. We work over phone, video, and email, whatever fits your schedule.

Kyle Scott, Mortgage Broker at Landmark Mortgages (BCFSA #504479)

Landmark Mortgages

  • Phone: 250-889-1686
  • Email: kyle@landmarkmortgages.ca
  • Hours: Monday to Friday, 8 a.m. to 7 p.m.; Saturday and Sunday, 11 a.m. to 5:30 p.m.
  • License: BCFSA #504479 (verify on the BCFSA public registry)
  • Based in: Victoria, BC. Serving clients across Vancouver Island and BC.
Book a 20-minute call→Call 250-889-1686

FAQ

Private mortgage questions, answered

Tap a question to expand the answer.

What is a private mortgage in BC?
A short-term loan secured against your home by a private lender, usually a Mortgage Investment Corporation (MIC), used when a bank or alternative lender can't approve you in time. Private lenders lend on the property and your equity rather than your income and credit, which makes them fast and flexible, and more expensive.
How does a private mortgage work?
The lender looks at your property, your equity position, how you'll service the loan, and your exit strategy, then lends against the home, often as a first or a second mortgage. There's usually little or no income documentation. The loan is short-term (often one year), with an exit planned from day one, whether that's refinancing into a cheaper mortgage once your situation improves, selling the property, or paying it off outright from a windfall.
Is it hard to get a private mortgage?
Usually no, if you have equity. Private approval is equity-based, so it's often easier and much faster than a bank, sometimes funding in days. Location can play a role, a rural or unusual property is a tougher, pricier file. The harder part isn't getting approved, it's making sure it's the right move: that there's a real reason and a realistic exit. That's the part we screen for.
How much do private mortgage lenders charge?
Two pieces: an interest rate and a lender fee. Rates are risk-based and move with the market, but they run higher than a bank. Lender fees typically range from nothing up to about 3% of the loan. At Landmark our broker fee generally matches the lender's fee, and when the lender charges nothing, we charge a standard 1%.
What drives the interest rate on a private mortgage?
Loan-to-value, your credit, whether it's a first or second mortgage, the location and type of property (rural, ultra-high-end, or less liquid property types cost more), and whether you're paying out an existing private lender. Stronger files with lots of equity can price surprisingly low; riskier files cost more.
Is it better to go with a private lender or a bank?
A bank, almost always, if you qualify. Bank rates are far lower. A private mortgage is for when the bank can't help in the time or shape you need, and you have a real reason and a way back to a cheaper mortgage. If a bank or an alternative lender can work, that's where you should be.
Can I get a private mortgage with bad credit?
Often yes, because credit isn't the main thing a private lender underwrites, equity is. Weaker credit usually means a higher rate, but the deal can still get done if the property and equity support it. From there, the goal is to repair your credit and refinance out.
What's the difference between a private lender and an alternative (B) lender?
An alternative or B lender is still an institution with set guidelines, just looser than a bank, and they still underwrite you (income, credit, ratios). A private lender lends on the property first, moves faster, needs fewer documents, and costs more. B is a flexible bank; private is a short-term, equity-based bridge.
How fast can a private mortgage close?
Often within days once the lender has what they need. A three-week close is a relaxed timeline for a private lender. That speed is a big part of why people use them.
How do I get out of a private mortgage?
Your exit is planned before the private mortgage is ever set up, and it's usually one of a few things: refinancing into a cheaper mortgage once your situation improves, selling the property, or paying the loan off outright from a windfall. If there's no realistic exit, a private mortgage is the wrong move, and I'll tell you so.

Sources

Official sources used on this page

This page provides general information about private mortgages in British Columbia. It is not personalized financial, legal, or tax advice. Rates, lender fees, and lending guidelines change frequently and vary by lender and file. The client files described are based on real closed files, with figures rounded and lightly simplified for illustration. For advice specific to your situation, please contact us directly.

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