Private money lenders in Canada have become a popular choice for many people these days. It is all because private money lenders offer a mortgage to individuals who are new immigrants, have a low credit score, or don’t have enough working experience in Canada.

Most people opt for private mortgage lenders to buy properties, real estate plots, condos, houses, and more. According to some statistics in Canada, private money lenders’ residential value of residential mortgages has seen a hike of 36.5% from 2019 to 2020.

But before sharing any more information, let’s understand who a private money lender is?

What is a Private Lender?

Private Lender

Private money lenders are just individuals or private corporations who lend out their finances. In the money lending process, Mortgage Investment Corporations play a crucial role. These corporations are where money from private money lenders is collected to fund other syndicated mortgages.

Also, private money lenders do not accept any deposits from the people; therefore, they are not federally regulated. Private money lenders in Canada provide a private mortgage for a shorter period but with a higher interest rate than banks.

Types of Private Money Lenders in Canada

Types of Private Money Lenders

There are only three types of private money lenders in Canada. They are as follows:

  • Private Individual

These types of private money lenders are individuals who have huge amounts of private funds. They mostly use these funds to invest in Canada’s real estate sector. And in exchange for lending money, they get better returns which they usually keep in their bank accounts. Or we can say they feel secure by investing in property compared to the stock or other markets.

  • Mortgage Investment Corporations

These private money lenders in Canada are mortgage investment companies (MIC). MIC is a group of individuals who invest their money with an organization. Further, the company uses the invested money return to fund mortgages depending on the case of numerous borrowers.

  • Syndicated Mortgages

Syndicated mortgage lenders are similar to MIC. However, they invest in projects that are further evolved into several other projects simultaneously. For instance, they can develop high-rise condos for more profits.

But most private lenders have limited access. And only individuals or organizations who are focused on private lending have that access. Therefore, as a client, if you do not research well, you won’t be able to access the best price, rate of interest and deal to choose from.

How to Find Private Money Lenders in Canada?

Find Private Money Lenders

Before taking any mortgage from private money lenders in Canada, these are some basic methods you must remember before taking any mortgage.

    • You must know the ins and out of private money lenders.
    • Try to build a strong network of potential private money lenders.
    • You have to represent a strong portfolio.
    • Make sure the lender fits your needs.

Build a Network: Building a network with people who can help you get a private loan is a good idea. Therefore, you must seek a relationship with real estate agents, financial advisors, brokers, financial planners, and title agents. These professionals are one the most popular professions in Canada. These professionals meet more than 50 – 60 people every day and have high contacts. Therefore, building a network is a good idea.

Prepare Materials in Advance: Make sure that you have all the documents required to submit to the private money lender in Canada. You must also try to negotiate so that the deal from the private money lender can be as per your requirement.

Be Prepared to Make a Pitch: If you choose an individual investor over a lending company, then make sure to represent your reasons based on facts and validate points.

Who Should Seek Private Money Lender Help?

Private Money Lender Help

Private money lenders help fill the bridge left by the old traditional lenders and banks. And also help those with bad credit scores in Canada, new immigrants, irregular earnings, self-employed, and foreign income earners. Private money lenders remove the hurdles of such people.

  • New Immigrants

It is possible that people moving to Canada might not have enough work experience in Canada or a good Canadian credit score. This is where private money lenders in Canada came into action. Though all private lenders don’t provide a mortgage to such people, exceptions are everywhere.

  • Self-Employed Individuals or Individuals with Irregular Income

Every bank needs at least two years of employment history in Canada. This works as evidence of a regular source of income. But, self-employed mortgage loans are challenging, especially when the income is irregular. This decision impacts those whose income is commission-based. Therefore, self-employed individuals with irregular income opt for private money lenders in Canada.

  • Foreign Earnings

Individuals who earn foreign income can find it difficult to qualify for a mortgage with banks. However, exceptions are everywhere. Therefore, individuals earning foreign incomes can take a loan from private money lenders in Canada.

What is the Fee of Private Money Lenders in Canada?

Fee of Private Money Lenders

Private money lenders in Canada are not subjected to any rules and regulations. Due to this, they can set their lending and fees conditions. Further, one private money lender can charge a variable fee depending upon the private money lender along with different terms.

For instance, one private money lender may charge 8% while another can charge 6%, which will turn into an effective annual rate of 9% after the fees. Also, comparing lenders only based on the interest rate is not enough because several hidden costs can affect the entire cost of borrowing the mortgage. There are other fees like private lending fees, brokerage fees, and legal and appraisal fees. The private money lenders can also charge some administration fees.

List of Private Money Lenders in Canada

list of Lenders

Here is the list of top private money lenders in Canada.

Private Money Lenders Rate Loan-to-Value (LTV) Fee of Private Money Lender
Canadalend 3.79% 85% Verify
Westboro Investment 4.99% 85% 2.00%
Cannect 4.99% Verify 3-4% + $750
Clover Mortgage 4.99% Verify Verify
nuborrow 5.25% Verify Verify
Dhugga Mortgages 5.49% 75% Verify
Spectrum Canada 5.50% Verify 1-2%
Alpine Credits 5.75% Verify Verify
VWR Capital 6.95% 75% $750

Wrap Up

The loan amount taken from the private money lenders is used in several ways by the borrowers. Therefore, while taking a loan from a private money lender, your aim must be to seek out someone you can present deals with for the long term. However, you can secure your future and present investments if you build a strong relationship. We hope you can now better understand how private money lenders work and which one will be best for you.

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Frequently Asked Questions (FAQs)

What is a private lender?

A private lender can be an individual or an organization. Private Money Lenders lend money to individuals who cannot get a loan from the bank due to several factors. But these private money lenders in Canada charge a higher rate of interest.  

Is a private lender better than a bank?

Banks offer more amounts as personal loans than private money lenders in Canada. Sometimes banks even pay C$ 66,967 for a personal loan. Though it varies based on numerous factors. However, the maximum private money lenders can offer variables depending on one lender and the other. 

What interest rate do private lenders charge?

The interest rate varies from one private lender to another across Canada. The interest rate also depends on the loan amount, tenure, and the private money lenders.  

How do private mortgage lenders work?

A private mortgage means a financial arrangement between the lender and the borrower. The lender can be an individual or an organization. In Canada, private money lenders offer private mortgages to family, friends, immigrants, and people with bad credit scores. These private money lenders generate profit from the interest given by the borrower.

How long does it take to get the approval for a private mortgage?

Private money lenders provide the principal loan amount within a few days compared to the weeks taken by the bank. Some of the private money lenders in Canada offer same day approvals. 

What if the private lender goes bankrupt?

Somehow if your private money lender goes bankrupt, your mortgage will be sold to a different lender. Therefore, your mortgage does not disappear, and you have to make payments to your new lender with previous rules continuously. Also, CMHC says unregulated lenders are not subjected to federal rules about the funds. Therefore, they must keep in reserve if credit losses rise due to mortgage loans.