What You Need to Know About Getting a Low Rate on a Private Mortgage

With a housing market that’s pricing out many Canadians along with stricter mortgage rules, getting a private mortgage is becoming more popular among those looking to buy a home.

The Financial Services Regulatory Authority of Ontario (FSRA) stated that the value of mortgages by private and alternative lenders has increased from $13 billion in 2019 to $22.4 billion in 2021. And, the number of mortgages rose from 30,435 in 2019 to 36,568 in 2021.

Canada is filled with hundreds of private mortgage lenders. Many of them offer the terms you’re looking for, but finding and negotiating with all of them takes time. Then, there are also those who are unlicensed and unregistered companies who claim they could offer 30 year private mortgages with interest rates as low as 2.75% and low down payments. They should be seen with red flags all over.

That’s why we, at Effortless Mortgage, are experienced, transparent, and specialize in securing the right private mortgage that suits your lifestyle and situation. In fact, we’ve created a comprehensive guide on private mortgages and private lenders in Ontario

Our clients typically want to know about getting a low rate on a private mortgage. We’ve created a short checklist below to follow to get the lowest rate possible:

  1. Shop Around – Don’t settle for the first private mortgage lender you find. There are several items to compare. Thankfully, Effortless Mortgage has a proven network of private lenders in Ontario and have our own in-house private mortgage lenders, with $0 broker fee. 
  1. Larger Down Payment – If you’re buying a home, most private mortgage lenders require a minimum 20% down payment to reduce their risk and also show your “skin in the game” and commitment. There are others who accept a minimum of 10% to 15%, depending on several factors. 
  1. House Value – The lower the house price and the higher the house value means a better loan to value ratio (LTV) which is more attractive to lenders. It means the house has good value and is marketable. 
  1. House Location – The property itself is the most important factor for a Private Lender to approve the mortgage. If your property is in good condition and in a “hot” market, it is considered more “secure”, and a private lender is more likely to lend against that property and offer a lower interest rate. 
  1. Lender Fees and Penalties – Beware of fees and penalties. Some lenders offer low introductory rates but then yield it up with a lender fee. Some lenders have high payout penalties (i.e. equivalent to 4 months for early payout), whereas others offer a percentage of the mortgage’s total amount to renew. Some private lenders charge 1% or 2% of the loan amount to renew. Many don’t. Therefore, ask for the fees and penalties at the beginning – and see if some fees can be included in the actual mortgage versus paying them upfront.
  1. Income and/or Credit Score – Private Lenders do take income, credit score, and investments into consideration. They want to ensure your income is enough to cover the mortgage payment. However, these factors will not make or break a deal. Better credit score or higher income can potentially help you get a lower mortgage rate.

When it comes to having a minimum credit score, there is no minimum credit score for private lenders. As long as you have enough down payment or home equity, you can get approved with poor credit or no credit.

Private Mortgage interest rates in Ontario can be as low as 3.99% and go all the way up to 10%+ depending on the factors listed above. 

Additionally, private lenders can usually offer lower interest rates than Mortgage Investment Companies (MICs), because they don’t have as much fixed cost as the bigger companies. 

Lastly, one thing to keep in mind is that despite higher interest than regular mortgages, a private mortgage offers a low payment option due to its interest-only feature. You won’t be paying down the mortgage per se but you are building home equity while keeping the monthly payment low (better cash flow) with interest-only private mortgages. 

Visit Effortless Mortgage Youtube Channel for more on bad credit mortgage, private mortgage and other important mortgage topics!


Ivy Skye Marshall: Ivy, a social justice reporter, covers human rights issues, social movements, and stories of community resilience.