Become Private Lender

Current Canadian mortgage rules, including the stress test, have made it more difficult for some people to get mortgages from traditional lenders, such as banks and credit unions. Those who are self-employed, first-time home buyers, new to Canada, or have credit challenges, are finding it particularly difficult.

As a result, more buyers are turning to private lenders to secure a mortgage.

Private lenders include mortgage investment corporations, investors who pool their capital (syndicated mortgages), or individuals lending their own money. According to the Bank of Canada these types of lenders have seen their share of the market in Canada double between 2015 and 2021.

Private lending can be an attractive business opportunity since:

• it provides a good return on your savings/investment (8-12%)
• some private mortgages are eligible to be inside an RRSP which are managed by a financial institution
• private mortgages are usually registered on a property (secured by real estate)

If you are considering becoming a private lender, you will need to:

• understand the property value trends in the area where the property is located
• verify the true value of the home or property. Do your own due diligence, including obtaining an independent appraisal, checking the property registry, etc.
• find out if there are other mortgages registered against the property—this may impact your priority and ability to recover funds if the borrower defaults
• be cautious of the risks of taking out a second mortgage on your own home to invest in a private mortgage
• consult a lawyer and obtain your own independent legal advice
• consult an accountant to understand the tax implications

While private lenders are not regulated, mortgage brokers representing private lenders and borrowers in Ontario are licensed by FSRA.