When traditional banks say no, private mortgage lenders step in. In Quebec, the private lending market has grown significantly, reaching an estimated $3-4 billion in outstanding loans. With the Bank of Canada rate at 2.75% in early 2026, conventional mortgage rates sit around 4.0-4.5% -- but private lenders charge 8-15%. Understanding when this option makes sense, and when it is a trap, is essential.
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1. What Is a Private Mortgage?
A private mortgage is a loan secured by real estate, provided by an individual investor or a Mortgage Investment Corporation (MIC), rather than a bank or credit union. In Quebec, private lenders are regulated by the AMF (Autorite des marches financiers) and must be registered if they lend against more than one property.
Private mortgages are typically short-term (6-24 months), interest-only, and carry higher fees. They are designed as bridge solutions -- not long-term financing. The lender primarily evaluates the property value (LTV ratio) rather than the borrower's income, making them accessible to people who cannot qualify traditionally.
2. When Private Lending Makes Sense
Private mortgages are a legitimate tool in specific situations:
Bridge financing: You need to close on a new home before selling your current one. A 3-6 month private loan bridges the gap.
Credit rebuilding: After bankruptcy or consumer proposal, you may need 1-2 years in private before qualifying with a B lender.
Self-employed income: Some self-employed buyers show low declared income. A private lender can fund the purchase while you build documentation.
Fast closing: Private lenders can fund in 5-10 business days vs. 3-4 weeks for banks. Useful for estate sales or power of sale situations.
3. Rates, Fees and True Costs
The headline rate is just part of the cost. Here is what to expect in Quebec in 2026:
- Interest rate: 8-15% per year (vs. 4.0-4.5% conventional)
- Lender fee: 2-5% of the loan amount, deducted from proceeds at closing
- Broker fee: 1-2% (if arranged through a mortgage broker)
- Legal fees: $1,500-$3,000 for the notary
- Appraisal: $400-$600 (required by most private lenders)
Example: On a $300,000 private mortgage at 10% with a 3% lender fee, you receive $291,000 at closing but owe $300,000 plus $30,000/year in interest. The effective cost for a 12-month term: approximately $39,000 -- or 13.4% of the borrowed amount.
4. Risks and Red Flags
Private lending carries serious risks. The most dangerous scenario is the "debt spiral": you take a private mortgage expecting to refinance with a bank in 12 months, but your financial situation does not improve. You are then forced to renew with the private lender at an even higher rate, or face foreclosure.
Watch for these red flags: lenders who do not verify your exit strategy, contracts with automatic renewal clauses at higher rates, prepayment penalties exceeding 3 months' interest, and anyone who pressures you to skip legal counsel. Always ensure the lender is AMF-registered and have an independent notary review the contract.
Warning: In Quebec, approximately 5-8% of private mortgage borrowers lose their property within 2 years due to inability to refinance. Have a clear, realistic exit plan before signing.
5. Alternatives: B Lenders, Credit Unions and More
Before going private, explore these options that sit between traditional A lenders and private:
- B lenders (Home Trust, Equitable Bank, ICICI): rates of 5.0-7.0%, more flexible income requirements, 1-2 year terms
- Credit unions (caisses populaires): Desjardins and smaller caisses may offer flexible underwriting for local borrowers, rates 4.5-5.5%
- Vendor take-back mortgage: The seller finances part of the purchase directly, often at rates of 5-8%
- Co-signer or guarantor: Adding a creditworthy co-signer can qualify you for conventional rates
6. Comparison Table: A vs B vs Private Lenders
| Feature | A Lender | B Lender | Private |
|---|---|---|---|
| Interest rate | 4.0-4.5% | 5.0-7.0% | 8-15% |
| Lender fees | None | 0-1% | 2-5% |
| Min. credit score | 680+ | 550+ | No minimum |
| Income verification | Full docs | Stated/alt docs | Minimal |
| Max LTV | 95% (insured) | 80-85% | 65-75% |
| Approval speed | 2-4 weeks | 1-2 weeks | 3-10 days |
| Typical term | 5 years | 1-2 years | 6-24 months |
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