Private mortgage lending allows individuals and companies to lend money secured against real property. Instead of purchasing shares or holding a GIC, the lender advances funds to a borrower and registers a mortgage against the property. The borrower pays interest under the agreed terms, while the mortgage gives the lender a legal interest that may be enforced if the borrower defaults.
A registered mortgage provides more protection than an unsecured loan, but it does not guarantee repayment. Property values can fall, prior claims may reduce the available equity, and enforcement can take time and cost money. Private lending also falls under provincial and federal rules that affect licensing, disclosure, interest, documentation and foreclosure.
This guide explains how private mortgage lending works in British Columbia, the difference between first and second mortgages, the risks lenders should assess, the terms a mortgage should address and the role of legal advice before funds are advanced.
TL;DR:
- A private mortgage is a loan secured by BC real estate rather than an unsecured promise to repay.
- Using personal funds does not automatically remove a lender from BC’s registration or licensing requirements. The answer depends partly on whether the person is carrying on a mortgage-lending business.
- BC’s Mortgage Services Act takes effect on October 13, 2026 and changes the regulatory framework for private lenders.
- Mortgage priority, combined loan-to-value ratio, property value, borrower capacity and the exit strategy all affect lender risk.
- A lawyer can review title, prepare the loan and mortgage documents and register the security. An appraiser and financial or tax advisor may also be needed.
What Is Private Mortgage Lending?
Private mortgage lending occurs when an individual or private entity lends money to a borrower and takes a mortgage on real property as security. The lender may be a person, corporation, trust or group of investors rather than a bank or credit union.
In a typical transaction, the borrower requires financing that a conventional lender will not provide, or needs funding more quickly than a bank can deliver it. The private lender advances the money, and a lawyer registers the mortgage at the BC Land Title Office. The borrower commonly makes monthly interest payments during a short term and repays the principal by refinancing, selling the property or renewing the loan.
If the borrower defaults, the lender may seek to enforce the mortgage through a court proceeding. The security improves the lender’s position, but recovery still depends on the mortgage’s priority, the property’s value, enforcement expenses and any claims that must be paid first.
Why Investors Consider Private Mortgages
Potential Interest Income
Private mortgages may offer more interest than some conventional fixed-income products because the lender accepts greater credit, liquidity and enforcement risk. The rate depends on the borrower, the property, mortgage priority, combined loan-to-value ratio, loan purpose, term and exit strategy.
A quoted interest rate is not the same as a guaranteed return. Missed payments, legal expenses, property-sale costs and an unrecovered principal balance can reduce or eliminate the expected income.
Security Against Real Property
A mortgage gives the lender a registered interest in a specific property. That is stronger than relying only on an unsecured promise to repay. The value of the security must still be assessed carefully. Registration does not ensure that enough equity will remain to repay the debt after prior mortgages, property taxes, strata claims, sale expenses or other enforceable interests are addressed.
Exposure to Real Estate Without Owning a Property
Private lending can provide exposure to the real estate market without requiring the lender to own and manage a rental property. There are no tenants or routine property repairs to manage, but the investment is usually illiquid. The funds may remain committed for the full mortgage term and longer if the borrower cannot repay on time.
Private Mortgage Lender Registration and Licensing in BC
Using personal funds does not create a blanket exemption from BC’s mortgage rules. The regulatory requirements depend on the lender’s activities and whether those activities amount to carrying on a mortgage-lending business.
Rules in Force Before October 13, 2026
Until October 13, 2026, the Mortgage Brokers Act remains in force. BC Financial Services Authority states that regulated mortgage activities include lending funds on the security of mortgages. A person or company carrying on a business of mortgage lending may need to be registered even when lending its own funds.
The number of transactions is relevant, but it is not the only consideration. BCFSA has taken enforcement action against unregistered parties that used their own money to carry on a mortgage-lending business. Anyone planning repeated or organized lending should obtain advice about registration before advancing funds.
New Rules Beginning October 13, 2026
On October 13, 2026, the Mortgage Services Act will replace the Mortgage Brokers Act. A person carrying on the business of mortgage lending will generally need to operate through a licensed mortgage brokerage in the lending category.
Under the new framework, a person may lend personal or spousal funds without a licence when the person is not acting for anyone else, is not carrying on the business of mortgage lending and meets the applicable conditions or exemptions. Whether someone is carrying on a business is fact-specific. Relevant factors may include:
- The frequency and continuity of the lending
- The number and nature of the mortgage investments
- The intention to earn a profit from the activity
- The time and resources devoted to lending
- Whether the lender has a commercial presence or specialized lending operation
Someone arranging mortgages for other people, administering loans for others, pooling investor funds or repeatedly lending as a business may face different requirements. BCFSA recommends obtaining legal advice when the correct licensing category or an exemption is uncertain.
How Private Lending May Be Structured
Some lenders advance funds personally. Others lend through a corporation, trust or other entity. The structure may affect taxation, succession planning, accounting and regulatory obligations. Incorporation does not remove the need to comply with mortgage-lending rules.
A lawyer can advise on the legal structure and prepare the required documents. An accountant or tax advisor should assess the tax treatment of interest income and the consequences of lending through a corporation or registered account.
For help preparing and registering a private mortgage, review Tathgar Law’s legal services for private and commercial mortgage transactions.
Types of Private Mortgages
First Mortgages
A first mortgage generally has priority over mortgages registered later. If the borrower defaults and the property is sold, the first mortgage is normally paid before a second mortgage. This usually exposes the first lender to less priority risk, but it does not place the lender ahead of every possible statutory or prior-ranking claim.
Second Mortgages
A second mortgage ranks behind the first mortgage. The first lender is paid before the second lender from the available sale proceeds, which can leave the second lender with a shortfall. Second mortgages often carry higher interest rates to reflect this added risk.
A second lender should assess the combined loan-to-value ratio, not only the amount of the second mortgage. The payout balance, interest rate, arrears and enforcement rights under the first mortgage can materially affect the remaining equity.
First and Second Mortgage Comparison
| Feature | First Mortgage | Second Mortgage |
|---|---|---|
| General priority | Ahead of later mortgages | Behind the first mortgage |
| Priority risk | Usually lower | Usually higher |
| Typical pricing | Usually lower | Usually higher |
| Common purpose | Purchase or refinance | Bridge financing or equity take-out |
Syndicated Mortgages
A syndicated mortgage has more than one lender participating in the same loan. It can allow lenders to contribute smaller amounts toward a larger mortgage, but the arrangement introduces more legal and regulatory complexity.
The documents should explain each lender’s interest, payment allocation, voting rights, administration costs, priority and enforcement process. Some syndicated arrangements may engage mortgage-services and securities laws. A subordination clause can also allow another debt to move ahead of the syndicated mortgage, reducing the investors’ security. Independent legal and financial advice is especially valuable before joining a syndicated loan.
Risks of Private Mortgage Lending
Borrower Default
The borrower may stop making payments or fail to repay the principal at maturity. Before advancing funds, the lender should review the borrower’s income, credit history, existing debt, use of funds and proposed exit strategy. An expected refinance or sale should be supported by realistic evidence rather than an assumption that financing or a buyer will become available.
Property Value and Loan-to-Value Ratio
The loan-to-value ratio, or LTV, compares the mortgage amount with the property’s appraised value. For a second mortgage, the combined LTV includes all mortgages that rank ahead of or alongside the proposed loan.
LTV is one of several key risk measures. A lender should rely on an independent appraisal prepared for the lending decision, while considering the property’s condition, location, zoning, permitted use, marketability and sale costs. An appraisal is an opinion at a point in time, not a guarantee of the price a forced or court-supervised sale will produce.
Title and Priority
A title search confirms the registered owner and identifies registered mortgages, liens, judgments, easements and other charges. Further searches may be required depending on the borrower and property. A lawyer can explain the proposed mortgage’s legal priority and any title concerns before the funds are released.
Title insurance may cover specified risks under the policy, but it does not protect against every loss, default or decline in property value.
Interest and Loan Charges
The interest rate, lender fees, bonuses, default charges and other costs must comply with the Criminal Code, the Interest Act and any consumer-credit rules that apply to the transaction. The legal definition of interest can include more than the stated annual rate. Loan pricing should be reviewed before an agreement is signed.
Liquidity and Renewal Risk
Private mortgages are commonly written for one or two years, but the lender may not receive the principal when the term ends. If the borrower cannot refinance or sell, the lender may have to negotiate a renewal or begin enforcement. Capital should not be committed on the assumption that it will be available on a fixed date.
Ways to Reduce Private-Lending Risk
- Obtain an independent appraisal addressed to the appropriate party
- Review the combined LTV and all prior-ranking debt
- Search title and confirm the proposed priority before advancing funds
- Investigate the borrower, loan purpose and repayment strategy
- Use written loan and mortgage documents tailored to the transaction
- Consider a guarantee from a principal or third party when the borrower is a corporation
- Confirm adequate property insurance and any required lender protections
- Obtain legal, tax, appraisal and financial advice where applicable
Key Terms in a Private Mortgage Agreement
A private mortgage should clearly record the commercial agreement and the lender’s remedies. Common terms include:
- Principal: The amount advanced to the borrower.
- Interest rate: The rate charged on the outstanding balance and the method used to calculate it.
- Payment schedule: The amount and frequency of payments during the term.
- Term and maturity date: The period of the loan and the date the outstanding balance becomes due.
- Security: The property and any other assets securing repayment.
- Priority: The mortgage’s intended position relative to other registered charges.
- Prepayment rights: Whether the borrower may repay early and whether a fee or minimum interest applies.
- Default provisions: Events that constitute default and the remedies available to the lender.
- Guarantee: A separate promise by a principal or third party to repay the debt where appropriate.
- Legal and enforcement costs: The borrower’s contractual responsibility for permitted expenses, subject to applicable law and any court order.
The documents may also address property taxes, insurance, further borrowing, assignment, renewal, environmental concerns, construction draws and reporting obligations. Generic templates may omit terms needed for the particular borrower, property or loan.
The Role of a Lawyer in Private Mortgage Lending
Preparing and Reviewing Documents
A lawyer can prepare or review the commitment, promissory note, mortgage, priority agreement, guarantee and related security documents. The lawyer can also explain the legal effect of the terms and identify provisions that do not match the agreed transaction.
Title Review and Registration
Before funds are advanced, a lawyer can search title, confirm registered ownership, review existing charges and register the mortgage at the BC Land Title Office. The lender may also need corporate, tax, judgment, bankruptcy or personal-property searches depending on the transaction.
Independent Legal Advice and Conflicts
The lender and borrower have different interests. Separate legal advice may be required, particularly when the terms are unusual, a guarantee is involved or one party is vulnerable. The lender’s lawyer does not advise the borrower about whether the loan is suitable.
Default and Foreclosure
Mortgage enforcement in BC is governed by legislation that includes the Law and Equity Act and by the Supreme Court Civil Rules. The process may include a demand for payment, a petition to the BC Supreme Court, an order nisi, a redemption period and an application for conduct of sale or an order absolute.
The result depends on the facts and the available property value. Contractual enforcement costs are not automatically recovered in full, and a court controls costs awarded in foreclosure proceedings. Legal advice should be obtained promptly after a default or missed maturity payment.
Registered Plans and Estate Planning
A private mortgage held in an RRSP or another registered plan must meet the applicable Income Tax Act requirements and the plan trustee’s policies. CRA recognizes qualifying arm’s-length mortgages and certain qualifying non-arm’s-length mortgages. Non-arm’s-length arrangements generally require administration by an approved lender, mortgage insurance and normal commercial terms.
A mortgage can also be a significant estate asset. Lending records and estate-planning documents should make clear how payments, renewals and enforcement are to be handled if the lender dies or becomes incapable.
Private Mortgage Lending in Victoria and Vancouver Island
Property values and marketability can differ across Victoria, Langford, Sooke, Duncan, Nanaimo and smaller Vancouver Island communities. A central condominium, rural acreage, development site and waterfront home may present very different appraisal, access, zoning, insurance and resale concerns.
Private financing is commonly considered when a borrower has self-employment income, a short closing timeline, credit challenges, a renovation project or a temporary gap between a purchase and sale. The reason a conventional lender declined the application remains relevant to the private lender’s risk assessment.
For purchase financing, Tathgar Law’s BC property transfer tax calculator can help estimate the provincial tax payable at closing. A borrower’s resale strategy may also be affected by the BC home flipping tax when residential property is sold within 730 days of acquisition.
Frequently Asked Questions
Is private mortgage lending legal in BC?
Yes. Private mortgage lending is legal, but the lender must comply with the registration or licensing, documentation, interest, disclosure and other rules that apply. Using personal funds does not automatically exempt someone who is carrying on a mortgage-lending business.
Does a private mortgage lender need a licence in BC?
The answer depends on the lender’s activities. Before October 13, 2026, a person carrying on a mortgage-lending business may need registration under the Mortgage Brokers Act. Beginning October 13, 2026, someone carrying on that business will generally need to operate through a licensed mortgage brokerage in the lending category. A person lending only personal or spousal funds without carrying on a lending business may qualify to lend without a licence under the new framework.
What happens when a private mortgage borrower defaults?
The lender may demand payment and begin a foreclosure proceeding in the BC Supreme Court. The borrower is normally given an opportunity to redeem the mortgage by paying the amount the court determines is owing. Later steps may include a court-supervised sale or an order absolute. Recovery depends on mortgage priority, property value, sale costs and other claims.
How much capital is needed for private mortgage lending?
There is no single legal minimum for an ordinary private mortgage. The amount depends on the property, borrower and loan. A syndicated mortgage may allow participation with less capital, but it creates added legal and regulatory issues. Funds should not be committed if they may be needed before repayment or enforcement is complete.
Can an RRSP hold a private mortgage?
A self-directed RRSP may hold a qualifying mortgage if the trustee permits it and the Income Tax Act requirements are met. Both arm’s-length and certain non-arm’s-length mortgages can qualify, but different conditions apply. Tax, financial and legal advice should be obtained before the registered plan advances funds.
How long does a private mortgage usually last?
Many private mortgages have terms of one or two years. The borrower may plan to repay through refinancing or a property sale. The lender should still prepare for a delayed payout, renewal request or enforcement proceeding if that plan does not succeed.
When to Contact a Lawyer About Private Lending
Legal advice should be obtained before funds are transferred. Early advice allows time to review title, confirm the parties, prepare the mortgage documents, address priority and register the security correctly. A lender considering repeated transactions should also confirm whether registration or licensing is required.
Private mortgage lending can provide interest income and registered security, but neither the rate nor the mortgage guarantees a successful investment. Careful borrower review, an independent appraisal, appropriate professional advice and properly prepared security documents all play a part in managing the risk.
For assistance with a private or commercial mortgage in Victoria, Langford, Sooke, Duncan or Nanaimo, contact Sunny Tathgar for a free consultation. Clients work directly with Sunny Tathgar for guidance on structuring, documenting and registering private mortgage transactions. Call 250.381.4040 or visit Tathgar Law at 736 Broughton Street, Unit 300, Victoria, BC.
