Rise of Private Mortgages in Canada Amid Higher Interest Rates

Canadian homeowners are increasingly turning to private mortgage lenders and remaining with them for longer periods. This shift comes as rising interest rates and declining home values make it difficult for many borrowers to qualify for traditional financing from banks and other financial institutions.

The Rising Cost of Alternative Financing

Private mortgages, also known as alternative mortgages, are designed for borrowers who do not meet the standard income or credit requirements of traditional lenders. Because these loans are higher-risk, they carry significantly higher costs.

Glasslake Funding Canada

For example, traditional three-year mortgages are currently priced around 4 per cent. In contrast, some of the cheapest three-year fixed rates at Home Trust Co. Were above 6 per cent, while National Bank’s alternative mortgage division priced theirs at 7.59 per cent.

Historically, borrowers used these expensive loans for short one-year terms to transition back to traditional lenders. However, Pierre Martin, vice-president of residential mortgage lending at Home Trust, notes that clients are now opting for three-year terms more frequently to shield themselves from housing market volatility.

Did You Know? Private mortgage companies have seen significant growth since 2018, following the introduction of stricter rules for mortgage companies by the Office of the Superintendent of Financial Institutions.

Renewal Challenges and Negative Equity

The trend of staying with private lenders is accelerating. Jake Bannister, senior sales manager at Glasslake Funding, reports that the share of customers renewing with private lenders has risen to roughly 75 per cent, up from 50 per cent previously.

In major Canadian cities, some borrowers are facing a precarious situation where home values have dropped below the value of the loan upon renewal. In these instances, homeowners may be forced to pay thousands of dollars out of pocket to cover the gap.

Bryan Jaskolka, chief executive of CMI Financial Group, points to a specific cohort of pandemic-era homebuyers who bought at the market peak. These individuals are now experiencing the most significant challenges as they renew into a high-interest-rate environment.

Expert Insight: Samantha Carter observes that the transition of private mortgages from short-term “bridges” to multi-year obligations suggests a deepening fragility in household finances. When borrowers cannot migrate to lower-cost loans, they risk becoming locked into elevated rates, which could limit their ability to build equity and increase their vulnerability to further economic slowdowns.

Market Growth and Economic Concerns

Data from the Canada Mortgage and Housing Corp (CMHC) shows that the private mortgage industry is outgrowing the broader market. In the fourth quarter of 2025, the 25 largest private mortgage companies saw assets under management grow by 8.6 per cent year-over-year, compared to 4.9 per cent for the overall industry.

Behind The Lender with Home Trust's Pierre-Emmanuel Martin | #12 | Mortgage Broker Podcast

This follows a second-quarter 2025 trend where private mortgage corporations grew by 6.5 per cent, while overall mortgage debt grew by 5 per cent. CMHC deputy chief economist Aled ab Iorwerth described this trend as concerning, noting that it suggests households are in a precarious economic situation.

Despite this growth, private mortgages still represent only 1.8 per cent of outstanding mortgage loan values in Canada. While some lenders, like CMI, view these as short-term solutions, others, like Home Trust, note that the fading stigma and narrowing rate gaps have benefited self-employed homeowners who may never qualify for traditional loans.

Future Outlook

The stability of the housing market may depend on whether these borrowers can eventually migrate back to traditional lenders. If home values continue to fluctuate, more homeowners could face gaps in equity upon renewal.

Economists may continue to monitor these risks to determine if they could spill over into the wider economy. A possible next step for many borrowers is a continued reliance on alternative lenders if traditional credit requirements remain stringent.

Frequently Asked Questions

What is a private mortgage?

Also known as an alternative mortgage, it is a loan for homeowners who do not meet the income or credit requirements necessary to qualify for traditional mortgages from banks and other financial institutions.

Why are homeowners choosing longer terms for private mortgages?

Due to falling home values and increasing mortgage rates, some borrowers are signing three-year terms instead of one-year terms to protect themselves from volatility in the housing market.

Which regions are most affected by this trend?

The impact has been most severe in major Canadian cities, specifically Toronto and Vancouver.

Do you believe alternative mortgages are a helpful safety net or a risky trap for modern homeowners?