Private Mortgages in BC: When to Use One (and How to Get Back Out)

The Short Answer

A private mortgage in BC is a loan secured against your property’s equity by individuals, mortgage investment corporations (MICs), or small funds — not banks. It’s typically interest-only, one-year terms, priced for risk, and it exists to do jobs conventional lending can’t: funding in days instead of weeks, clearing CRA liens, bridging a purchase before a sale, or carrying a file through a credit recovery. Used correctly, it’s a power tool — precise, fast, and temporary. Used as a permanent home, it’s an equity shredder. The whole discipline fits in one sentence: never enter a private mortgage without a written, dated exit. Here’s how they actually work, what they honestly cost, when they’re the right call — and when we’ll tell you they’re not.

What a Private Mortgage Actually Is

The money comes from private capital — individual investors, MICs pooling many investors, small syndicates — lending against the security of your real estate. Key mechanics that differ from bank lending:

• Equity is the underwriting. Loan-to-value is the primary question; credit score barely registers (we’ve funded private files with beacons in the 400s). Income matters mainly as it relates to the exit.
• Interest-only payments are standard — lower monthly carry, no principal paydown. The balance you enter with is the balance you leave with, which is precisely why the leaving date matters.
• Short terms, usually one year — and renewal at maturity is the lender’s option, not yours. A private mortgage without a live exit plan is a countdown, a point we cover in depth on our renewal-denial guide.
• Fully legal and broker-regulated. The lenders operate under securities and provincial rules, and in BC the brokers arranging them are licensed by BCFSA with mandatory written fee and conflict disclosure before anything proceeds.

The Jobs a Private Mortgage Is Built For

1. Speed. Completion date at risk, financing fallen through, opportunity with a deadline — private money can fund in days when banks need weeks.
2. CRA liens and tax arrears. Banks freeze at the sight of CRA debt (with reason — the CRA can prime their position on title). Private capital pays the government out at closing, clears the title, and resets the board — the mechanics are on our bad-credit and alternative lending guide.
3. Bridges. Buying before your sale completes; finishing a construction project the original financing didn’t cover; carrying a property through an estate or separation until it can be sold or refinanced properly.
4. Credit events too fresh for the B space. Straight out of a consumer proposal, mid-recovery from a business failure — private lending holds the file while time and strategy do the repair work.
5. Properties and situations banks won’t touch. Unusual homes, partial interests, non-conforming zoning, or simply stories too complicated for a formula.
6. The strategic second mortgage — important enough for its own section:

The Second Mortgage Move: Don’t Break a Great First

Suppose you’re sitting on a first mortgage at an excellent rate with years left, and you need $100,000 — debts, CRA, a project. Breaking that beautiful first triggers a penalty and reprices your entire balance at today’s rates. A private second behind it leaves the first untouched.

Illustrative math (your numbers will differ — we run them exactly): a $500,000 first at 2.99% plus a $100,000 private second at 10% carries a blended rate of roughly 4.2% across the full $600,000 — often dramatically cheaper than paying a penalty to break the first and refinancing everything at a higher rate. The second is expensive per dollar; the position is cheap. This is exactly the structure behind the real case on our renewal-denial page: a $122,000 second placed to consolidate, scores rebounded, and the whole position refinanced to A rates about four months later. The second did its job and left.  

That’s the honest case for a second mortgage — and it’s a narrower one than it’s usually sold as. Where it sits among the other structures, including the ones that almost never work, is set out in when the standard mortgage doesn’t fit in BC.

What It Honestly Costs

All of it, in one place: private rates run well above prime — commonly high single digits for strong first positions, climbing into the low teens for seconds and higher-risk files, quoted per file because risk is priced line by line (LTV, position, property, exit). Fees typically run about 2%, shared between the lender and the brokerage — more for higher-risk files and second mortgages. Add legal costs (you typically cover both your lawyer and the lender’s) and usually an appraisal. Structures like an interest reserve — borrowing extra, held by the lender to subsidize your monthly payments — can buy breathing room when cash flow is the pinch point. Every dollar of all of this goes in writing before anything proceeds. If the all-in cost doesn’t clearly beat your alternative, we’ll show you that math and say don’t.

The Exit Discipline: Every Private Mortgage Ends One of Four Ways

We define the exit before we place the mortgage — one of these, with a date attached:

1. Graduation — credit repaired or income documented, refinancing up the spectrum to a B lender or straight to prime (the two-step program in action).
2. Completion — the bridge closes: your sale completes, the construction finishes, the estate settles, and the private pays out from proceeds.
3. Consolidation into a new first — first and second rolled into one new mortgage at renewal or when rates and file allow.
4. A planned sale — and we mean it. When the equity is draining and no other exit is credible, the honest advice is to sell on your timeline and protect what remains. We’ve spent years gently guiding longtime clients to exactly that decision — because renewing a private forever isn’t service, it’s a slow-motion foreclosure with paperwork, and we won’t do it.

There’s a more extreme version of the same logic, for households that can’t carry even the payments: an interest reserve mortgage, where the payments themselves are borrowed. The exit discipline matters more there, not less.

When We’ll Tell You Not To

• No credible exit fits the four above. Then private money only rents time at a price you can’t afford, and the kinder answer is the harder conversation today.
• The equity is too thin. Private lending at high LTV gets punishingly expensive fast — and leaves no cushion when life moves. Sometimes the answer is a smaller amount, or none.
• It’s funding a lifestyle gap. If monthly spending exceeds income as a pattern, borrowed equity enlarges the reckoning. The pattern gets addressed first — sometimes with a restructure as part of the plan, never instead of one.
• You’re shopping for a permanent mortgage. Private capital is scaffolding, not architecture. If a lender or broker is happy to renew you indefinitely, ask who that arrangement is really serving.

Every private mortgage needs its exit defined before it starts. If nobody has walked you through which of the four applies to you, that’s your answer about the broker. The tests are set out for self-employed borrowers, but they apply to any file a lender reads badly: how to choose a mortgage broker for self-employed borrowers in BC.

Frequently Asked Questions

The Right Tool, Held Correctly

If a private mortgage is on your radar — by choice or by circumstance — the conversation to have is the whole one: the job it’s doing, the all-in cost in writing, and the dated exit. Start with the alternative lending spectrum or the reset framework, then bring us the file.

Call or text 604-833-4663 (HOME) or book a free, zero-pressure strategy session — including a straight “don’t do this” if that’s what your numbers say. Own a home? Get your free HomeBrew report and know your equity position before you need it.