If a bank has turned you down because of your credit score, you can still borrow. Ontario private mortgage lenders approve based mainly on your home equity, not your credit score. The trade-off is a higher rate, higher fees, and a short term — but used properly, a private mortgage can stop a power of sale, pay out a consumer proposal, or consolidate crushing debt while you rebuild your credit. Here is how it actually works.

How private mortgage lenders look at you (versus a bank)

A bank’s decision runs on two rails: your credit score and your documented income. Miss on either and you are usually out. Private mortgage lenders flip that priority list. Equity comes first, your exit plan comes second, and your credit history is context rather than a verdict.

That does not mean credit is ignored. A score in the 500s, a past consumer proposal, collections, or missed payments will all be read. But they are weighed against the strength of the property behind the loan. The more equity you hold, the lower the lender’s risk — and the more room there is to negotiate terms.

One thing worth knowing: in Ontario, private mortgage lending is regulated. Brokers and lenders must be licensed by the Financial Services Regulatory Authority of Ontario (FSRA) under the Mortgage Brokerages, Lenders and Administrators Act, 2006. Always confirm the licence of anyone offering you a private mortgage.

First or second charge — which one you need

Most bad-credit borrowers I meet already have a bank mortgage and need money on top of it. That means a second-charge private mortgage, registered behind the existing lender. If the property is mortgage-free — or the goal is to replace an existing mortgage entirely — a first-charge private mortgage is the structure.

Private mortgages for bad credit are almost always short-term: six to twenty-four months, commonly with interest-only payments to keep the monthly cost manageable. Terms like these exist because a private mortgage is bridge financing, not a destination. For a deeper look at one of the most common uses, see my guide to using a second mortgage for debt consolidation in Ontario.

What a bad-credit private mortgage actually costs

Honesty first: private rates are materially higher than bank rates. The lender is taking on risk the bank refused, and the rate reflects that. The exact rate depends on your equity, the property type, and the story behind your credit — every file is priced on its own merits, which is why I publish a guide to private mortgage rates in Ontario rather than a single number.

Beyond the rate, expect closing costs structured around the deal:

Lender fee. The lender charges a fee for the loan, normally deducted from the advance on closing — not paid up front out of your pocket.
Broker fee. A broker who sources and structures a private deal charges for that work.
Legal and appraisal costs. A lawyer registers the charge and an appraisal confirms the value the lender relies on.

Because fees are layered on top of the interest rate, the total cost of borrowing deserves a clear written breakdown before you sign anything. Ask for it, and make sure it covers both the initial term and what a renewal would cost if you needed one.

When a bad-credit private mortgage makes sense

In my practice, these are the situations where private lending earns its cost:

Stopping a power of sale. When a bank mortgage has fallen into arrears and the lender has started enforcement, a private second can bring the account current and buy time.
Paying out a consumer proposal or CRA arrears. Both are hard to clear with bank financing, and both improve your position once resolved.
Self-employed borrowers. If your stated income does not reflect your real income, private lenders focus on equity instead of tax returns.
Bridging a transition. Waiting on a sale, an estate settlement, or a new job start date — situations where bank rules cannot bend and time matters.

If one of these sounds like you, the private mortgages page lays out how I structure these deals across Ontario.

The exit plan: this is the whole point

Every bad-credit private mortgage needs a written exit plan, and this is where a broker earns the fee. Before you sign, you should be able to answer three questions: how will this loan be repaid at the end of the term, what needs to happen with your credit in the meantime, and what is the backup plan if it does not?

The common exits are refinancing back to a bank or credit union once the score recovers, selling the property, or renewing the private loan while the plan plays out longer. I build the term length and payment structure around that timeline rather than hoping it works out. A private mortgage without an exit plan is not a strategy — it is a countdown.

Red flags to avoid

The private space has honest lenders and a few you should walk away from:

Upfront fees before funding. In Ontario, legitimate lender fees are deducted from the advance on closing. Anyone asking you to wire money before the loan funds is a red flag.
No licence. Verify the broker and lender with FSRA before sharing documents.
Pressure to sign today. Urgency is sometimes real — a power of sale has deadlines — but you should always understand every fee and the exit plan before you commit.
Vague answers about renewal. Ask what happens if you cannot exit at term end, in writing.

How to get started

A private application is simpler than a bank one. I typically need your current mortgage statement, property tax bill, an idea of the property’s value, ID, and a straight account of the credit story — what happened, when, and where things stand now. From there I match the file to lenders I have worked with, negotiate terms, and structure the exit plan.

Bad credit closes the bank’s door, but it does not close every door. If you have equity in an Ontario property and a plan to get back on your feet, a private mortgage may be the bridge that gets you there. Reach out through my contact page and I will review your situation personally.