In Canada, alternative and private mortgages are financing options available to borrowers who may not qualify for traditional loans from major banks or credit unions. These types of mortgages are common among self-employed individuals, those with poor or limited credit histories, or people purchasing unconventional properties.

Here's a breakdown of what they are, who they’re for, and the pros and cons:

alternative lenders

Alternative lenders (often referred to as B-lenders) are typically regulated financial institutions like trust companies, monoline lenders, or smaller banks. They serve borrowers who don’t meet the strict lending criteria of A-lenders (e.g., major banks).

Common features:

• Slightly higher interest rates than A-lenders (e.g., banks) but lower than private lenders

• Require 20%+ down payment

• More flexibility in underwriting (e.g., they may accept stated income or higher debt ratios)

Best for:

• Self-employed borrowers

• Bruised credit

• High debt service ratios

• New Canadians with limited credit history

PrIVATE LENDERS

Private lenders can be individuals, mortgage investment corporations (MICs), or syndicates of investors. These loans are based primarily on equity (value of the property), not income or credit.

Common features:

• Short-term (usually 6 months to 3 years)

• High interest rates (7% to 15%+)

• High fees (lender and broker fees apply)

• Often interest-only payments

• Loan-to-value (LTV) usually capped at 75%-80%

Best for:

• Emergency financing

• Bridge loans

• Foreclosure prevention

• Properties not approved by traditional lenders

• People with very poor credit or no income documentation

Risks:

• High cost of borrowing

• Short terms can lead to refinancing challenges

• Potential for predatory lending practices if not regulated

Key Consideration:

*** Know your exit strategy—especially for short-term private loans