How To Invest in Private Mortgages in Canada


Looking for alternatives to traditional investments? Private mortgages may offer attractive returns for Canadian investors willing to take on a bit more risk. Though not as well-known as stocks or mutual funds, private mortgages allow everyday investors to earn interest by lending money directly to real estate buyers.

With proper research and due diligence, private mortgages can provide portfolio diversification and income streams that may outpace other fixed-income offerings. In this post, we’ll explore the basics of private mortgage investing for Canadians. Whether you’re an experienced investor or just starting out, you may find private lending opportunities that align with your financial goals.


What are private mortgages?

Private or non-institutional mortgages are residential or commercial mortgage loans funded by private investors rather than banks or other institutional lenders. Private mortgages serve borrowers who may not qualify for traditional mortgages from banks for various reasons, such as low credit scores, unstable income sources, lack of traditional employment, or unique properties that banks deem hard to finance.


The terms and interest rates of private mortgages are not regulated in the same way as traditional bank-issued mortgages. Private lenders have the flexibility to negotiate higher interest rates and shorter repayment terms tailored to each borrower’s circumstances. The private mortgage market provides an alternative source of financing for borrowers while also presenting a different asset class for investors to potentially boost returns.


Benefits of private mortgage investing

  • Private mortgages provide financing to borrowers who may not qualify for bank mortgages. Reasons include low credit scores, unstable income, or unique properties.
  • The rates and terms of private mortgages are not regulated like traditional mortgages. This allows more flexibility for investors and borrowers.
  • Private mortgages typically earn 8-12% interest yearly. This is higher than other fixed-income returns like GICs or bonds. The higher rates compensate for higher default risk.
  • Private mortgage terms are shorter than traditional mortgages, usually 6 months to 2 years. This gives investors more control to adjust their portfolios.
  • Investors can customize each private mortgage’s interest rate, fees, and other conditions. This helps optimize their returns.


Risks of private mortgage investing

  • Higher default risk – Private borrowers have a greater chance of late or missed payments compared to banks. Must thoroughly assess each borrower.
  • No government backing – Private mortgages are uninsured. No guarantees if borrowers default. Lenders must foreclose to try to recover losses.
  • Diversify investments – Limit exposure to any single private mortgage. Spread risk across multiple borrowers.



How to qualify for private mortgages?

When applying for a private mortgage, lenders will want to see that you have a solid plan for the property and the ability to repay the loan. Start by putting together a detailed proposal showing your intended use for the property, such as flipping it or renting it out. Include a budget showing all projected purchase, repair, and operating expenses costs. Show how you will fund these costs through your own cash reserves, proceeds from selling another property, or other lower-interest financing you qualify for.


Provide evidence that the property will increase in value through your improvements, such as comparable sales data for similar renovated properties. Ask the lender if they require a professional appraisal.

Be ready to show personal financial records proving your net worth and cash flow. Highlight other real estate or renovation projects you have successfully executed. The more convincing you can be about your experience and well-thought-out plan, the more confidence the private lender will have in funding your mortgage.


Private mortgage investment options

There are three primary options to invest in private mortgages depending on an individual’s desired level of involvement:

  • Lend directly to borrowers yourself: This has the highest potential returns but requires more time and expertise to arrange each loan.
  • Invest through a mortgage investment corporation (MIC): MICs pool money from many investors to provide mortgages. This is easier, but profits are lower after MIC fees.
  • Invest through a mortgage syndication fund: A broker gathers money from multiple investors for a single large mortgage. The broker handles finding and vetting borrowers. You get some diversification but do not lend directly.


Who needs private mortgages?

Private mortgages serve an important role for certain types of borrowers who may not qualify through traditional lenders. Self-employed individuals and small business owners often have fluctuating incomes that can make it difficult to get a standard mortgage, even if they can comfortably make payments.

People with past credit challenges, low credit scores, or limited credit history may be unable to get a mortgage from a bank, but a private lender can provide financing. Private mortgages also offer more flexibility for unique property types like mobile homes or tiny condos that banks view as risky. When financial emergencies arise, a private mortgage can help borrowers facing foreclosure or struggling to buy a home due to a temporary loss of income.

While private lenders take on more risk, they can earn strong returns by helping borrowers who need alternative options. Careful screening and evaluation of borrowers can lead to profitable investments.


Major mortgage investment corporations in Canada

  • CMLS Financial: One of the largest mortgage investment corporations in Canada. CMLS offers investors exposure to a diversified portfolio of commercial and residential mortgages across the country.
  • Atrium Mortgage Investment Corporation: A publicly traded company that focuses primarily on mid-market commercial real estate loans.
  • Timbercreek Financial: Timbercreek provides financing for multi-residential, commercial, and institutional real estate.
  • Trez Capital: A privately owned company with assets under management that offers private mortgage funds to accredited investors looking for income and capital preservation.
  • MCAN Mortgage Corporation: One of Canada’s oldest mortgage investment corporations that provides mortgage financing and securitization services.



Private mortgages can be a smart investment for Canadian investors seeking strong returns outside traditional markets. By understanding the risks and rewards, doing thorough due diligence, and working with experienced brokers, you can add private lending to your portfolio. This alternative asset allows earning attractive interest rates secured by real estate collateral.

While not without risk, private mortgages offer investors another option for portfolio diversification and income generation if approached systematically and strategically. If you consider your investment alternatives, don’t overlook private lending as a potential source of robust returns. With the right knowledge and discipline, investing in private mortgages can become a key component of a prudently constructed portfolio.

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