Private mortgages have a reputation, and a lot of it comes from stories, not facts. Some people avoid them when they could really help; others jump in without understanding the costs. Here are seven common myths, and what’s actually true.
Myth 1: “Private mortgages are loan sharks.”
Fact: A private mortgage is a legal, registered mortgage. In Alberta it’s registered at Land Titles like any bank mortgage, and the documents are reviewed by a lawyer before you sign. Many private lenders are established mortgage investment corporations that lend millions of dollars a year. Terms vary widely, which is why comparing offers matters.
Myth 2: “Only people in serious trouble use them.”
Fact: Plenty of private mortgage borrowers are in solid shape. They just don’t fit a bank’s rules right now. Self-employed people, buyers who need to close quickly, people buying before they sell, and owners of unusual properties all use private lenders.
Myth 3: “Once you go private, you’re stuck.”
Fact: Private mortgages are designed to be short-term. Many borrowers move back to an alternative lender or a bank once their credit recovers, their income is documented, or a consumer proposal is finished. The key is having that exit plan from the start.
Myth 4: “Private lenders don’t care about you, only the house.”
Fact: Equity matters most to private lenders, but they still want the loan to be paid back. They’ll ask about your situation, your income and your plan. A believable exit strategy can make the difference between an approval and a decline.
Myth 5: “The interest rate is the only cost.”
Fact: Private mortgages usually come with a lender fee and often a broker fee, plus legal and appraisal costs. These can add up. Always ask for the total cost over the term, not just the rate, so you can compare offers fairly.
Myth 6: “You can’t get one with bad credit.”
Fact: Credit matters less to a private lender than to a bank. Many private lenders approve borrowers with low scores, collections or recent missed payments, as long as there’s enough equity and a sensible plan.
Myth 7: “Going through a broker costs more than going direct.”
Fact: A broker may charge a fee on a private mortgage, but they also compare multiple lenders, negotiate terms and help you avoid bad offers. Going direct means you only see one lender’s terms. Ask any broker to explain their fee up front, and compare.
The bottom line
A private mortgage is neither a scam nor a magic fix. It’s a tool that works well for the right situation, with clear terms and a plan to get back to a cheaper lender. The best way to know if it fits is to talk your situation through with someone who arranges them regularly.
This article is general information, not financial or legal advice. Lender requirements, rates and fees change and depend on your situation.