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If you’ve been researching mortgage options and keep hearing the word “subprime,” you might be wondering what it actually means—and whether it applies to you. In Canada, subprime mortgages are often associated with borrowers who have lower credit scores or less traditional financial situations. But there’s more to it than just your credit score.

In this article, we’ll break down what a subprime mortgage is, how it compares to a prime mortgage, what lenders look for, and who offers these types of loans in Canada. Let’s get started.

Definition of a Subprime Mortgage in Canada

A subprime mortgage is a type of mortgage offered to borrowers who don’t meet the standard requirements for a traditional (or “prime”) mortgage. This could be due to:

A low credit score

High levels of existing debt

Irregular income

A history of missed payments or bankruptcy

A short or limited credit history

These loans usually come from alternative lenders or private lenders, rather than major banks. Because the borrower is seen as a higher risk, the mortgage terms often include a higher interest rate or additional fees to protect the lender.

But just because it’s called “subprime” doesn’t mean it’s a bad thing. For many Canadians, these mortgages are a way to buy a home, access equity, or consolidate debt—especially when traditional lenders say no.

Difference Between Prime vs. Subprime Mortgages

The biggest difference between a prime and subprime mortgage is the type of borrower they’re designed for.

A prime mortgage is given to borrowers who meet the standard criteria set by major banks. These borrowers typically have:

A strong credit score (usually 680 or higher)

Stable, verifiable income

Low debt compared to income

A solid history of repaying debts on time

A subprime mortgage, on the other hand, is offered to people who fall outside those guidelines. These borrowers may:

Have a credit score below 660

Be self-employed or have non-traditional income

Carry a higher debt load

Have a past bankruptcy or consumer proposal

Because the lender is taking on more risk, subprime mortgages usually come with:

Higher interest rates

Closing costs

Despite these differences, many borrowers use subprime mortgages as a intermediate solution—a way to rebuild credit or access funds until they can qualify for a prime mortgage in the future.

What is a Subprime Credit Score in Canada?

In Canada, your credit score plays a big role in determining what kind of mortgage you can qualify for. Here's how lenders typically view it:

Prime lenders usually require a credit score of at least 680 to approve a mortgage.

In some cases, lenders may make exceptions and approve borrowers with scores as low as 650, especially if income and home equity are strong.

According to FSRA (Ontario’s mortgage regulator), a mortgage is considered **subprime if any borrower has a credit score of 600 or lower.

If your score falls below 660, you may not qualify with a traditional lender—but:

B lenders and private lenders often work with borrowers in this range.

Approval usually depends on other factors like available equity, income stability, and overall debt levels.

Having a lower credit score doesn’t mean you can’t get a mortgage—it just means you'll likely need to work with an alternative lender and expect different terms.

Debt-to-Income Ratios for Subprime Mortgages

Another key factor lenders look at is your debt-to-income ratio, often referred to as GDS (Gross Debt Service) and TDS (Total Debt Service).

GDS looks at how much of your income goes toward housing costs (mortgage, property taxes, heating, etc.).

TDS looks at how much of your income goes toward all debts (including credit cards, car loans, student loans, etc.).

Traditional prime lenders typically require a GDS below 39% and a TDS below 44%. If you go beyond those limits, you may be declined—even if your credit score is okay.

Subprime lenders are more flexible. Many will accept GDS and TDS ratios up to 50% with a few that will accept TDS as high as 60%, especially if the mortgage is secured by a property with significant equity.

That said, even subprime lenders want to make sure you can afford the loan. They’ll often look at your net income and bank statements to assess your ability to make payments, especially if you’re self-employed or working on commission.

Interest Rates for Subprime Mortgages in Canada

Subprime mortgages come with interest rates relatively higher compared to traditional mortgages, and the exact rate depends on a few factors:

Your credit score

The amount of equity in the home

The loan-to-value ratio (LTV)

The lender’s risk assessment

Whether the property is owner-occupied or a rental

As of May 2025, most prime mortgage rates in Canada start around mid-4%s while subprime mortgage rates start around mid-5%s. Private mortgage lenders usually charge slightly higher rates than that if you are unable to qualify with subprime mortgage lenders.

There are also closing costs to consider, which can include lender fees, broker fees, and legal fees. In many cases, these are paid from the mortgage proceeds, so you don’t have to pay out-of-pocket.

How to Get a Subprime Mortgage in Canada

Applying for a subprime mortgage isn’t all that different from applying for a traditional one. But there are a few important differences in how lenders evaluate your application.

Here’s a general step-by-step process:

Speak with a mortgage broker.

A mortgage broker who works with subprime lenders can assess your financial profile and match you with the right lender. Brokers have access to B lenders and private lenders that aren’t always available to the public directly.

Gather your documents.

Even if your credit score is low or your income is unconventional, you still need to show:

ID and proof of homeownership

Proof of income (pay stubs, bank statements, or tax returns)

Property details (like a mortgage statement or tax bill)

Credit report (usually pulled by the broker with your consent)

Equity is key.

Subprime lenders rely more heavily on your home equity than your credit score. Most want to see at least 20% equity in the property, though more is better.

Review the offer carefully.

A subprime mortgage may have:

Higher interest rates

Closing costs

Your broker should walk you through the details to make sure it’s the right solution for your needs.

Use it as a stepping stone.

Many borrowers use a subprime mortgage for a short time while they rebuild credit, pay off debt, or improve income stability—then switch to a prime mortgage later. Talk to your mortgage broker about your exit strategy.

Who Offers Subprime Mortgages in Canada?

There are three main categories of lenders in Canada, and each one handles subprime borrowers differently.

1. A Lenders (Prime Lenders)

These are the big banks and credit unions. They generally do not offer subprime mortgages. They require:

High credit scores (usually 680+)

Stable, verifiable income

Low debt-to-income ratios

If you don’t meet these conditions, you’ll likely be declined or referred to a B lender.

2. B Lenders (Alternative or Subprime Lenders)

These lenders specialize in working with borrowers who don’t meet prime guidelines but still have strong potential. Consult a mortgage broker to ensure the lender and product are suitable for your situation.

They include:

Trust companies

Monoline lenders

Some credit unions

They offer more flexibility on:

Credit scores (as low as 550–600)

Income (self-employed or stated income is often accepted)

Debt ratios (higher GDS/TDS limits)

B lenders often charge slightly higher interest rates than A lenders, but their rates are usually much lower than private lenders.

3. Private Lenders

Private lenders are individuals or companies who lend their own funds. These are not regulated in the same way banks are, which gives them more flexibility—but also higher risk.

Private lenders are ideal for:

Very poor credit (under 550)

Short-term financing

Unconventional income

Situations where speed is important

If you are unable to qualify with subprime lenders, you might need to get a mortgage from a private lender as a stepping stone to get there. Always consult an experienced mortgage broker.

Are Private Lenders the Same as Subprime Lenders?

No — private lenders and subprime lenders are not the same, though they both serve borrowers who fall outside traditional lending criteria.

Subprime lenders, often called B lenders, are still regulated financial institutions such as trust companies, monoline lenders, and some credit unions. They work with borrowers who don’t meet the strict requirements of the big banks—usually due to lower credit scores, high debt ratios, or self-employment. These lenders follow industry regulations and offer more structured mortgage terms, often at slightly higher rates than prime lenders.

Private lenders, on the other hand, are not financial institutions. They include:

Individuals

Corporations

Investment firms

Mortgage Investment Corporations (MICs)

Unlike banks or credit unions, private lenders are not provincially or federally regulated in the same way. They have more flexibility in how they lend, which allows them to approve borrowers that even B lenders might turn away. However, this usually comes with higher interest rates, additional fees, and shorter loan terms.

To summarize:

B lenders are subprime lenders regulated as financial institutions.

Private lenders are unregulated entities that operate outside of traditional banking rules.

Both can offer solutions to borrowers who can’t qualify with A lenders, but they do so under different structures and rules.

Should You Consider a Subprime Mortgage?

If you’re facing challenges like poor credit, self-employment, high debt, or recent financial hardship, a subprime mortgage might be a helpful bridge to get back on track. It can give you access to home equity, help you avoid high-interest credit card debt, or give you time to repair your financial profile.

However, it's important to understand the trade-offs:

Higher rates: Subprime mortgages often come with slightly higher interest rates.

Closing costs: Might include lender fees, broker fees, legal fees, and appraisal fees.

Exit strategy: There should be a plan to qualify for a prime mortgage in the future.

That’s why working with a knowledgeable mortgage broker is key. They can help you:

Understand your options

Compare lenders and terms

Build a roadmap to qualify for better rates in the future

What is a Subprime Mortgage in Canada?

A subprime mortgage in Canada is designed for borrowers who don’t meet traditional bank requirements—usually due to credit score, income, or debt issues. While they come with higher costs, they’re not meant to be permanent. For many, they’re a stepping stone toward rebuilding credit and regaining financial control.

If you think a subprime mortgage might be right for you, start by speaking with a mortgage broker who understands the subprime and alternative lending market in Canada. With the right guidance, you can make informed decisions that move you closer to your financial goals.