Getting a Second Mortgage from a Private Lender in Ontario

When a traditional bank says "no," it can feel like a brick wall, but for homeowners in Ontario, a rejection is simply a redirect to a more flexible solution. A private second mortgage is a powerful alternative for accessing your home’s equity without the strict rules of a bank.

This guide is your introduction to getting a private second mortgage, designed to help you understand exactly what this tool is, when it makes sense to use one, and why it can be the perfect fit when a traditional lender falls short. We’ll walk you through the approval process, the transparent costs involved, and the most critical step of all—your exit strategy.

If you have other questions, check out our Second Mortgage FAQs: Requirements and Application.

What Exactly is a Private Second Mortgage?

Think of a private second mortgage as a specialized home equity loan. However, instead of borrowing from a bank or a credit union, the funds come from a private individual or a group of investors. It is called a "second" mortgage because it is registered on your property's title in second position, right behind your primary mortgage from the bank.

This is a crucial point. A private second mortgage does not replace your existing mortgage. You leave your current low-rate first mortgage completely untouched. This means you avoid the massive penalties that often come with breaking a mortgage contract. You are simply adding a smaller, separate loan on top of it to access your equity.

These are typically short-term loans, with terms of one to two years, designed to help a homeowner solve an immediate financial problem or seize an opportunity.

When is a Private Second Mortgage the Right Tool?

A private second mortgage isn't for everyone, but it is an incredibly effective solution in specific situations where traditional lenders cannot or will not help. We see clients use this tool most effectively for:

Urgent Debt Consolidation: If you’re struggling with high-interest credit card debt, a private second mortgage can consolidate those debts into a single, lower-interest payment, freeing up hundreds or even thousands in monthly cash flow.

Addressing a Bad Credit Second Mortgage Scenario: This is a primary use case. If your credit score is preventing you from getting a traditional HELOC or refinance, a private lender can provide the funds you need based on your equity instead.

Stopping a Power of Sale or Foreclosure: If you've fallen behind on your first mortgage payments and are facing legal action from your bank, a private second mortgage can provide the funds to pay off the arrears and give you the breathing room to get back on your feet.

Emergency Home Renovations: For urgent repairs like a leaky roof or a broken furnace that you don't have the cash to cover, a private mortgage can be arranged much faster than a traditional loan.

Business or Investment Capital: Many self-employed individuals get second mortgages to invest in their business, buy equipment, or cover expenses when their income is difficult to prove to a traditional bank.

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The Approval Process: It’s All About the Equity

Here is the single most important difference between a bank and a private lender: banks are income-focused, while private lenders are equity-focused.

When you apply at a bank, they scrutinize your credit score and your provable income to see if you can service the debt. A private lender’s primary concern is the value of your property and how much equity you have in it. This is known as equity-based lending.

How Equity-Based Lending Works

The main metric a private lender uses is the Loan-to-Value (LTV) ratio. This is a percentage that represents the total of all loans against your property compared to its appraised value.

Most private lenders are willing to lend up to a total LTV of 80-85%. Here’s how the math works:

Your Home’s Appraised Value: $1,000,000

Maximum Total LTV (at 85%): $850,000

Your Existing First Mortgage Balance: $500,000

Maximum Available for a Second Mortgage: $850,000 - $500,000 = $350,000

In this scenario, as long as your home is in a marketable location and in good condition, a private lender would be comfortable providing a second mortgage of up to $350,000. Your credit score and income are secondary considerations. As long as there is enough equity to secure the loan, the deal is likely to be approved. This is why it's such a powerful tool for those with a bad credit second mortgage need; the focus is on the asset, not the applicant's history.

A Transparent Breakdown of the Costs

This flexibility and speed come at a price. Private mortgage financing is more expensive than borrowing from a bank, and it's crucial to understand all the costs involved.

Interest Rates

Interest rates for private second mortgages are significantly higher than "A" or "B" lender rates. This is because private lenders are taking on more risk by sitting in second position and often lending to clients with bruised credit. You can typically expect interest rates to be in the range of 10% to 15%, depending on the strength of your application and the location of your property. Many of these loans are structured with interest-only payments, which keeps the monthly cost lower than a traditional amortizing loan.

Lender & Broker Fees

Unlike a bank mortgage, where the lender pays the broker, private mortgages involve fees paid by the borrower. This is standard practice in this part of the market.

Lender Fee: Most private lenders charge a setup fee, which typically ranges from 1% to 3% of the loan amount. This fee is for their work in underwriting and funding the loan.

Broker Fee: The mortgage brokerage also charges a fee for sourcing the private lender, structuring the deal, and managing the application process. This fee also typically ranges from 1% to 3% of the loan amount.

These fees are usually deducted directly from the mortgage advance, meaning you don't need to pay them out of pocket. For example, on a $100,000 second mortgage, the total fees might be $4,000, so you would receive $96,000 in your bank account.

The Most Important Part: Your Exit Strategy

A private second mortgage is not a long-term solution; it is a short-term bridge. Before you even sign the documents, you must have a clear and realistic plan for how you will pay back the loan at the end of the 1 or 2-year term. This is your private mortgage exit strategy, and it's the most important part of the entire process.

A responsible broker will not arrange a private mortgage for you without first establishing a viable exit plan. There are two primary strategies:

Exit Strategy 1: Selling the Property

This is a common strategy for homeowners who need to access funds to prepare a home for sale (e.g., for renovations or to pay off debts) or for those who are in the process of moving. When the property is sold, the proceeds are used to pay off the first mortgage, then the private second mortgage, with the remaining equity going to the homeowner.

Exit Strategy 2: Refinancing with a Traditional Lender

This is the most common exit strategy. The private second mortgage is used as a tool to solve an immediate problem, giving you 12-24 months of breathing room. During that time, you work on improving whatever issue was preventing you from getting bank financing in the first place.

If it was bad credit, you use that time to rebuild your credit score with a secured credit card and consistent on-time payments.

If it was unprovable income, you use that time to build up a two-year history of tax returns.

At the end of the private mortgage term, your financial situation has improved. You can now qualify with an "A" or "B" lender, who will give you a new, single mortgage that is large enough to pay off both your original first mortgage and the private second mortgage, consolidating everything back into one lower-rate loan.

Use Second Mortgage is a Tool, Not a Last Resort

A private second mortgage should be viewed as a strategic financial tool, not a desperate last resort. When used correctly, it can solve urgent problems and create opportunities that would otherwise be out of reach. It provides immediate access to your home's equity, focusing on the value of your asset rather than your past financial history.

However, because the costs are higher and the market is less regulated, it is absolutely essential to navigate this space with an experienced and reputable mortgage brokerage. The team at 360Lending has deep relationships with a wide network of private lenders. We can ensure you are getting a fair deal, and more importantly, we will work with you from day one to build a clear exit strategy that ensures your short-term solution leads to long-term financial health.

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