When is a private mortgage the right bridge?

In Ontario, a private mortgage can be the right bridge when the bank, credit union, monoline and alternative-lender options cannot help in time. You also need the funds only for a short period, and a clear, realistic way to repay them, such as a sale or a refinance. A private mortgage costs more than other mortgages, so it suits a specific, time-limited problem rather than a long-term need.

What a private mortgage is

A private mortgage is a loan from an individual or a fund lending its own or pooled money, rather than from a bank or a regulated institution. Private lenders focus mostly on the property and its equity, and less on income and credit. That focus lets private lenders lend where other lenders will not, at a higher price.

A private mortgage generally carries a higher rate than a bank or alternative lender, and a short term. Expect a lender fee, often a broker fee (both disclosed in writing before you commit), and legal costs. Many private mortgages are interest-only, so the balance does not fall.

When a private bridge can make sense

People commonly use a short private loan in these situations:

• Buying before a firm sale: your new home closes before your current home has sold firmly, so a bank will not bridge the purchase.
• A closing that cannot wait, when a bank or alternative lender needs more time than you have.
• Tax arrears or a power-of-sale threat, where clearing the problem quickly protects significant equity.
• A short gap while you rebuild, for example after a consumer proposal, with a plan to move to an alternative or bank lender.

In each case, you decide how you will repay the private mortgage before you start.

Your repayment plan comes first

Before you sign a private mortgage, know how the loan will be repaid. Good ways to repay include:

1. Selling a property on a known timeline.
2. Refinancing with an alternative or bank lender once a specific issue, such as a credit event or missing tax returns, is resolved.
3. A known source of funds, such as an inheritance or business proceeds with a date attached.

If the repayment plan is vague, the cost of renewing a private loan term after term can eat into your equity quickly.

Where we fit in a private bridge

As Stonefield Mortgage, we focus on mortgages from banks, credit unions, trust companies and monoline lenders. We look at those first, then alternative lenders. If a private bridge is the right tool, we explain the private bridge plainly and refer you to Stonefield Capital, our private-lending brand, which handles private lending. We stay focused on getting you back to an institutional lender afterwards.

What to do next

If you think you might need a short bridge, use our call-me-back form and we will check the institutional options first. You can also read about private mortgages.