Private Mortgages for Real Estate Investors: Borrowing and Lending

Private mortgages for investors work in two directions. You can borrow private money to buy, renovate or close fast on a bungalow that banks won’t finance yet, or you can lend your own money secured against someone else’s property. Both can fit a portfolio, but both carry real risk and need careful due diligence.

What is a private mortgage?

A private mortgage is a loan from an individual, a group of investors or a mortgage investment corporation (MIC) rather than a bank. It’s secured by a charge registered on the property’s title, just like a bank mortgage.

Private lenders focus on the property’s value and the borrower’s exit plan more than on credit scores or income. In exchange, they charge higher rates and fees, and terms are short, often six months to two years, usually interest-only.

Side 1: Borrowing private money as an investor

When private financing makes sense

• Buying a fixer-upper. Banks may hesitate on a bungalow with major damage or missing systems. Browse fixer-upper bungalows to see the kind of homes involved.
• Adding a legal unit. Private money can fund the purchase and renovation before you refinance with a bank.
• Closing quickly. A motivated seller may accept a lower price for a fast, firm deal.
• Bridging a gap. You need funds before another property sells or refinances.

The true cost of borrowing private

Add up the interest, lender fee, broker fee, legal costs on both sides and any prepayment or renewal fees. Then compare the total to the profit or value you expect to create. If the numbers only work in a rising market, they don’t really work.

Side 2: Lending privately as an investment

Some investors lend money secured by real estate to earn interest income. There are a few common ways to do it.

Approach	How it works	Key considerations
Direct private loan	You lend to one borrower, secured on one property	Full exposure to one deal; you or your lawyer handle defaults
Syndicated mortgage	Several lenders share one mortgage	Read disclosures closely; understand your position and rights
Mortgage investment corporation (MIC)	You buy shares in a pool of mortgages	Diversified, but you depend on the manager; liquidity can be limited

Risks to understand before you lend

• Default: if the borrower stops paying, recovering your money can take time and legal costs.
• Value risk: if prices fall, your loan may be larger than the property can sell for. As of August 2026, the GTA’s MLS HPI composite benchmark was down 4.5% year over year.
• Position: a second mortgage gets paid only after the first is fully paid.
• Liquidity: your money is usually locked in until the loan ends.
• Concentration: one large loan can be a big share of your savings.

Due diligence checklist for private mortgages

1. Confirm licensing. The brokerage and agent arranging the deal should be licensed with FSRA.
2. Get an independent appraisal. Don’t rely on the borrower’s estimate of value.
3. Check the loan size against value. More equity behind the loan means a bigger cushion.
4. Know the position. First mortgages carry less risk than second or third.
5. Review the exit. How will the loan be repaid, and what if that plan fails?
6. Use your own lawyer. Have a real estate lawyer review the commitment, title and charge terms.
7. Consider title insurance. It can protect against certain fraud and title problems.

How private mortgages fit a bungalow portfolio

For most investors, private money is a tool for a specific stage of a deal, not a permanent setup. A typical path looks like this: buy with private financing, renovate or add a legal unit, then refinance with a B lender or a bank once the property and income are stable. Our guide to A, B and private lenders explains each step.

On the lending side, private mortgages are generally viewed as a higher-risk, higher-return slice of a broader portfolio. Talk to a financial advisor about how much, if any, belongs in yours.

Frequently asked questions

Are private mortgages a good investment?

They can produce income, but they carry real risks, including default and falling property values. No return is guaranteed, so get independent financial and legal advice first.

Can I use a private mortgage to buy an investment bungalow?

Yes. Investors use private loans for fast closings, fixer-uppers and properties banks won’t finance yet. Plan your exit before you sign.

What happens if a private borrower defaults in Ontario?

The lender can enforce the mortgage, usually through power of sale. It takes time and legal costs, and recovery isn’t guaranteed if the property’s value has dropped.

How is interest from a private mortgage taxed?

Interest income is generally taxable. Ask an accountant how it applies to you and whether any registered accounts could hold the investment.

The bottom line

Private mortgages give investors speed and flexibility, and private lending can add income to a portfolio. Both need a clear exit, independent valuation, a licensed broker and your own lawyer. When you’re ready to look at deals, browse investor-friendly bungalows for sale.