Private mortgages are legal in Ontario, and they are regulated. Lenders in the business generally need an FSRA licence unless exempt, you should use a Level 2 mortgage agent or broker, Canada's criminal interest rate caps annual cost at 35% including fees, and on a larger loan you should expect your own lawyer. Check licences before you sign.
People often ask whether private lenders are legal, safe or regulated. The short answer is that private mortgages are legal in Ontario and that there are real rules around them, but the rules do not make every deal a good one. Here is what the law says and what to check before you sign.
Ontario's Mortgage Brokerages, Lenders and Administrators Act says a person or business is a mortgage lender when it lends money in Ontario on the security of real property. Anyone carrying on business as a mortgage lender needs a licence from the Financial Services Regulatory Authority of Ontario (FSRA), unless an exemption applies. Banks and credit unions are exempt, and there are other specific exemptions, for example for lawyers acting for their clients in limited ways. The exemptions are technical, so the safest approach is to ask and to check, not to assume.
FSRA also says that if you need an alternative or private mortgage, you must work with a Level 2 mortgage agent or a mortgage broker. A Level 1 agent can arrange mortgages only with traditional lenders such as banks and credit unions. FSRA keeps a public list where you can check whether an individual or a business is licensed. It takes a minute, and it is worth doing before you share documents or pay anyone anything.
Yes. Canada's Criminal Code treats an annual percentage rate above 35% as a criminal rate. Two details matter. First, the calculation counts all the charges of borrowing, including fees, commissions and similar charges, not just the stated interest rate. Second, the limit is a ceiling, not a benchmark. A deal can be well under it and still be expensive, which is why we suggest comparing the total cost, not only the rate. Federal regulations treat some loans to corporations for business purposes differently, so the rule is clearest for individuals borrowing for personal reasons.
If a lender or agent will not tell you the full cost of the loan in writing, treat that as a warning sign. We cover how fees work in private mortgage fees: who really pays.
The Law Society of Ontario's rules say a lawyer, or lawyers in the same firm, must not act for both the lender and the borrower in a mortgage or loan transaction. There are exceptions. They include institutional lenders such as banks and credit unions, loans of $75,000 or less, a mortgage taken back by the seller as part of a sale, lenders and borrowers who are not at arm's length, and lawyers in remote locations with no other lawyer available. Even then the lawyer has to follow additional steps, and the Law Society tells lawyers to use extreme caution before acting for a borrower and a private lender.
In practice, on a larger loan from a private lender you should expect to have your own lawyer, separate from the lender's lawyer. Your lawyer acts for you alone. Be wary of anyone who suggests that one lawyer can handle both sides of a large private loan to save time or money.
One more reason to check first: FSRA cannot recover money on your behalf if something goes wrong. Questions are much easier to ask before signing than after.
For a wider list of questions that separate one private lender from another, see private lenders in Ontario: what to ask before you choose one. This article is general information, not legal advice, and the rules can change, so speak to a lawyer about your own situation.
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