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A private mortgage is a loan secured against real estate from a private lender. Before committing, borrowers should understand the amount they will receive, their obligations and how repayment will work; lenders should understand the security, its priority and the risk of non-payment. The interest rate alone does not explain the agreement.
This guide concerns property in Ontario. A mortgage for a home, a business-purpose loan and financing for a commercial or development property can raise different legal and regulatory issues.
Key takeaways
- Look beyond the payment. Fees, deductions, repayment terms and the amount due at maturity all matter.
- Renewal is not assured. The borrower’s repayment plan and the lender’s expected repayment date deserve attention before funding.
- Security is not a guarantee. Property value, prior claims and recovery costs can affect what a lender receives.
- Confirm who represents you. Borrower, lender and guarantor interests may differ; independent representation requirements must be assessed.
Tell us whether you are borrowing, lending or being asked to guarantee the loan, and mention any signing, funding or maturity date. We will check conflicts and availability and explain the proposed scope and any consultation fee. An inquiry does not create a lawyer-client relationship or confirm that we have accepted a deadline.
What makes a mortgage “private”?
Private lending may involve an individual, a private company or a mortgage investment corporation. The description identifies the source of the loan; it does not establish one standard set of terms or protections.
A private mortgage can be a first mortgage or sit behind another mortgage. It may be used for a purchase, refinancing or another borrowing purpose. Some arrangements are short-term and interest-only. Others have different payment structures. The commitment, loan agreement, registered charge and incorporated mortgage terms need to be considered together.
What should a borrower understand before signing?
The important question is what you are agreeing to, not simply whether financing is available. Matters for legal review include:
- The parties and property: who owes the debt, what property secures it and whether another person is providing a guarantee.
- The advance: the loan amount, deductions and conditions that affect whether and when money can be released.
- The obligations: payment dates and requirements concerning insurance, taxes, property use and other financing.
- The end of the term: the maturity date, repayment obligations and any renewal or extension provisions.
- Changes and default: what may trigger a demand, additional charges or enforcement rights.
A commitment containing conditions is not a guarantee that funds will be available on the date you expect. Where the mortgage is connected to a purchase, the financing documents and purchase agreement create related but separate obligations.
Why do fees and the net advance matter?
The stated loan amount may differ from the cash available after closing. Lender or brokerage fees, legal costs, appraisal costs and other agreed deductions can reduce the net advance. Existing debts being paid from the proceeds can reduce the amount available for another purpose.
A simple comparison
Two offers can state the same interest rate yet produce different results. One may involve larger upfront deductions; another may have different early-repayment or renewal charges. The borrower needs to understand both the money available now and the obligations that remain.
Interest, fees and default charges also need legal scrutiny. Signing an agreement does not make every charge enforceable. Applicable legislation, including the federal Interest Act, may restrict particular interest or default provisions. The wording and substance of a charge matter.
What happens when the mortgage term ends?
An interest-only payment generally pays the interest without reducing the principal. Keeping those payments current does not, by itself, resolve the principal repayment due at maturity.
A repayment plan may depend on refinancing, a property sale or another source of money. Its assumptions matter to both sides. A future lender may apply different requirements, property values may change and a sale may take longer than expected.
A private lender may decline to renew, or may offer different terms and costs. An expected extension is not the same as an agreed right to one. Our guide to refinancing or switching mortgage lenders in Ontario explains related legal work when replacement financing is involved.
What should a private lender review?
For a lender, a mortgage is security for repayment, not ownership of the property or an assurance of a return. A legal review may address:
- Title and priority: existing mortgages, liens and other interests, and the intended ranking of the proposed security.
- The lending documents: the borrower’s obligations, guarantees, conditions of advance and rights if the agreement is not performed.
- Other lenders: restrictions in existing financing and any proposed postponement or priority agreement.
- Administration and repayment: responsibility for payments, notices, renewals and payout arrangements.
A property valuation does not establish legal priority. Likewise, a title search does not establish market value or the borrower’s ability to repay. Those are different parts of assessing the transaction.
Earlier-ranking claims, sale expenses and changes in value can reduce recovery. A lender may lose interest or principal, and may not receive repayment when expected. Registration does not remove those risks.
A mortgage shared by multiple investors, or an investment through a mortgage fund, can raise additional securities, regulatory and administration questions. Those arrangements need to be distinguished from a single lender making a direct loan.
Do the borrower and lender need separate lawyers?
Ontario’s professional rules restrict a lawyer, or lawyers practising together, from representing both sides of a mortgage transaction, subject to limited exceptions. Do not assume the lender’s lawyer also advises the borrower, or that using different lawyers in the same firm necessarily resolves the issue.
Independent legal advice and full representation in the transaction are different scopes of work. A person signing a guarantee may have separate interests requiring their own advice or representation. The proposed arrangements must be assessed before the retainer is accepted.
A mortgage broker’s or agent’s role is also different from a lawyer’s role. Where one is arranging private financing, appropriate Financial Services Regulatory Authority of Ontario (FSRA) licensing and suitability obligations matter. Brokerage disclosures should explain the brokerage’s role, relationships, compensation and material risks. Legal document review does not replace that work or guarantee the financing’s financial suitability.
Does lending to family or through a company change the issues?
A family relationship does not answer whether money is a gift, an unsecured loan or a debt secured against property. Unclear expectations about repayment, interest or a future sale can create disputes even where everyone begins on good terms.
Corporate borrowing also requires care about who is liable. A company’s debt, a person’s guarantee and a mortgage over an owner’s property are different commitments. Our guide to personal guarantees in Ontario discusses the individual undertaking in more detail.
What if payments, maturity or enforcement are already a concern?
Default may involve more than a missed instalment. The documents may address unpaid principal at maturity or failures concerning insurance, taxes or other obligations.
A lender’s remedies depend on the documents and applicable law. Power of sale is subject to legal notice and timing requirements; a default does not simply make the lender the property’s owner. Personal liability and a possible shortfall after a sale also require assessment.
If a demand, notice or disputed payout has already been received, mention it and its dates when contacting a lawyer. That is a different matter from reviewing a proposed loan before signing. Legal Route’s mortgage default and enforcement services address related legal concerns.
How can Legal Route assist?
Legal Route Professional Corporation advises private lenders or borrowers on Ontario property-backed lending, subject to conflicts, availability and an agreed retainer. Legal services are provided by Vinay Thapliyal, a lawyer licensed by the Law Society of Ontario and the firm’s Founder & Principal Lawyer.
Our private mortgage and secured lending services may include review or preparation of commitments and security documents, advice about guarantees and priority arrangements, and legal work involving registration, amendments, payouts or discharges.
The work needed to review a proposed borrowing commitment can differ from acting for a lender on a subsequent mortgage involving competing security or guarantees. We explain the proposed scope, fee arrangements and other applicable charges before you proceed.
Private mortgage legal services across Ontario
Our office is in Brampton. We assist clients in Toronto and the GTA, including Mississauga, Vaughan, Oakville and Oshawa, and throughout Peel, York, Halton and Durham.
Virtual appointments are available for suitable matters elsewhere in Ontario, including Hamilton, Kitchener-Waterloo and Ottawa. We explain the identification, signing and attendance requirements for your transaction; not every requirement can be completed remotely.
What to include in your first inquiry
- Whether you are the borrower, lender or proposed guarantor, and the names of the parties.
- The property’s municipality and the general purpose of the financing.
- Whether a commitment is proposed, signed or already funded.
- Any known signing, funding, maturity or notice date.
Please wait for our secure intake instructions before sending identification, account statements or detailed confidential documents.
Frequently asked questions
Is a private mortgage always a second mortgage?
No. “Private” describes the source of financing. “First” or “second” concerns the mortgage’s position relative to other security. The proposed priority needs to be checked against the title and the transaction’s documents.
Can I repay a private mortgage early?
That depends on the repayment provisions and applicable law. An agreement may address notice, minimum interest, prepayment charges or restrictions. There is no universal early-payout amount that can safely be assumed for every private mortgage.
Does paying on time guarantee renewal?
No. Payment history does not create a renewal right that the agreement does not provide. Any proposed extension, changed rate or additional charge needs to be considered on its terms.
Can we use one lawyer because the lender is a relative?
The relationship is relevant, but does not settle the representation question. Professional rules, conflicts and the particular transaction still need to be assessed. The arrangement should be clarified before either side relies on a lawyer’s involvement.
Does a registered mortgage guarantee the lender will recover the loan?
No. The legal security, other claims, property value, costs and available remedies can all affect recovery. Registration is not a guarantee of repayment or investment performance.
Can Legal Route help if the commitment is already signed?
Contact us with the current stage and relevant dates. We can assess whether we can assist and the work required. Review after signing does not automatically cancel or change an existing obligation.
Understand the commitment before the next decision
Borrowing, lending or being asked to guarantee a private mortgage? Speak with Legal Route about the documents, the property and the legal work your situation may require.
Call 905-283-8514 · In-person appointments: 2074 Steeles Avenue East, Unit 17, 2nd floor, Brampton, Ontario L6T 5A5. Virtual appointments are available where appropriate.
We confirm whether we can act and agree on scope and fees before work begins.
Related Legal Route guides
Official resources
- FSRA: Understanding alternative and private mortgages
- FSRA: Working with a mortgage professional
- Ontario: Mortgages Act
- Justice Canada: Interest Act
This article provides general information about Ontario private mortgage matters, not legal or financial advice. The documents, parties, property and applicable law determine the advice your situation requires.