Private lending – what is it and how can it benefit you? – RMS Estates Law

Skip to content

Home
About
Services
Blog
Checklists
Contact

Home
About
Services
Blog
Checklists
Contact

Facebook Instagram Linkedin Youtube

Private lending – what is it and how can it benefit you?

Raluca M. Soica
September 26, 2023

As the title indicates, this article aims to inform readers about what private lenders are, the risks and benefits associated with using a private lender versus a financial institution, and factors that one should consider before deciding to use a private lender.

Private lenders are individuals or organizations that provide loans to individuals and businesses that have a harder time obtaining loans from traditional banks. A private lender is not affiliated with a traditional bank or credit union.

The benefits of using a private lender:

Those with lower qualifications: traditional banks will investigate lending a loan, examining the borrower’s employment history, credit score, and other sources of income. Individuals who do not meet a certain threshold will not be approved for a loan by the bank. Private lenders, on the other hand, allow individuals with less-than-perfect credit histories to borrow money from them.
Approval Process: The approval process takes only a few days for a private lender. A bank, on the other hand, usually approves a loan within a few weeks.
Avoid the mortgage stress test: Since 2018, all Canadian homeowners have been required to submit to the mortgage stress test. Mortgage stress tests are designed to determine whether a borrower can pay off their mortgage if interest rates rise. A mortgage expert can determine how much you can borrow based on the actual market interest rates.
Consolidation of debt: A private lender loan can be used to pay off outstanding debts to improve one’s credit rating when a traditional bank is not willing to assist.

Risks of using a private lender:

Higher Interest Rates: Higher interest rates are charged by private lenders compared to the traditional bank. In most cases, brokers and lenders add their fees, contributing to even higher interest rates. When establishing the interest rate, two primary factors are considered: the location of the property and whether the property has a first or second mortgage. It is important to note that private lender fees vary from case to case, ranging from as low as 3.99% to as high as 18%.
Private Lenders are more sensitive to the market: at the heart of private lending is risk, and many private lenders have capital invested in stocks subject to market fluctuations. The lack of security means that if one is owed a loan and cannot pay it and needs more money from the private lender, the private lender may not be able to grant this request since they are put in a less-than-ideal place.
The likelihood of mortgage fraud is remarkably higher: a traditional bank will provide individual security, while a private mortgage lender may not possess this element and credibility. It is essential to exercise due diligence and caution when dealing with a private lender. The following red flags should be noted: how the funds are transferred to the lender – if they are abroad, if the transaction is rushed, if the lender lacks the appropriate credentials and licensing, and if the loan application process is not formal.

Hiring a real estate lawyer can ensure that one fully understands all legal documents and their consequences. Lawyers will conduct due diligence by verifying that the private lender company is legitimate. They can assist you in drafting contracts between lenders and property owners and inform you of any potential financial risk. Please do not hesitate to contact RMS Estates if you or a friend have questions about private lenders’ fees or mortgage fraud.

PLEASE NOTE THAT THE CONTENT OF THIS BLOG IS MERELY FOR INFORMATION PURPOSES AND DOES NOT CONSTITUTE LEGAL ADVICE.

Share This Post

PrevPreviousMortgage enforcement in Ontario

NextMortgage Fraud in OntarioNext

Payment of Funds into Court

What is payment of funds into court? Payment into court is the process of placing funds under the court’s control for safekeeping and neutral administration.

Raluca M. Soica January 26, 2026

Fraud and identity-theft mitigation steps after death

Where there is concern about fraudulent use of the deceased’s credit products or identity, commonly referenced preventative steps include: Procedural tool: Notice of Objection (Ontario)

Raluca M. Soica January 14, 2026

Contact

(647) 280-6497
(647) 694-5290
raluca@rms-law.ca
2005 Sheppard Avenue East, Suite 100, Toronto, Ontario M2J 5B4

Quick Links

Home
About
Services
Blog
Checklists
Contact

Follow me

Facebook Instagram Linkedin Youtube

Terms of Use

Ⓒ 2023 – All rights are reserved by www.rms-law.ca