Private Mortgages Don’t Need More Borrowers. They Need Better-Informed Ones.

Summary: About one in six Ontario mortgages registered in 2024 came from a private lender. Demand is not this market’s problem. Understanding is. Borrowers need to know what their payments cover, what the transaction will cost and how they will repay the loan when it matures. Brokers remain responsible for explaining those obligations, but the industry has a shared interest in making that explanation more consistent. AI could make individual explanations affordable at scale. Independent oversight would be needed to make them trustworthy.

Private lenders accounted for 15.8 per cent of mortgages registered in Ontario in 2024, or 65,233 transactions. Research from the Canada Mortgage and Housing Corporation identifies rejection by conventional lenders as the main reason borrowers turn to alternative lenders. This is a market shaped by banks’ lending criteria, borrowers’ circumstances and the cost of credit.

From a broker’s desk, the pattern is familiar. A borrower’s self-employed income does not fit a bank’s requirements. A credit setback prevents refinancing. A transaction needs to close quickly. Some borrowers are already behind on payments or facing a power of sale. These circumstances can make private financing useful, but they also leave little room for misunderstanding.

A couple came to one of us a year into a private second mortgage arranged elsewhere. They were proud of never having missed a payment and believed those payments had reduced their debt. Every payment had covered interest alone. The principal was unchanged, and renewal would add thousands more in fees. They had met their payment obligations without understanding what those payments accomplished.

That misunderstanding is sufficiently common to deserve attention beyond individual files. In research released in 2023, Ontario’s Financial Services Regulatory Authority found that 54 per cent of homeowners surveyed believed private mortgage payments covered both principal and interest. Many private mortgages are interest only.

For a borrower using private financing as a bridge, the central question is how that bridge ends. Returning to a bank, selling the property or resolving a temporary income problem may provide a credible exit. Hoping that property prices will rise or that another lender will renew the debt is a much weaker proposition. CMHC’s research found that effective exits from alternative mortgages in Ontario declined from about 80 per cent in 2011 to 72 per cent in 2020, the latest year examined in that study.

Ontario’s suitability guidance already requires brokers to assess the proposed exit, explain the risks and address how a mortgage could deplete a borrower’s equity. Yet FSRA reported that suitability assessments were undocumented in every private mortgage file it examined in 2024–25. It also reported correct annual percentage rate disclosure in only 35.5 per cent of the files reviewed. These findings concern the examined files, rather than the entire market, but they expose a gap between the required standard and the evidence that it was met.

One of us has spent 27 years as a mortgage broker; the other spent ten years building digital and AI products inside regulated financial institutions. Both perspectives lead to the same conclusion: a signed disclosure is insufficient evidence of understanding. Borrowers should be able to explain what they owe, what their payments cover, what must happen before maturity and what they will face if it does not.

The person explaining the mortgage is usually paid when it funds and may have a relationship with the lender. That creates a potential conflict, without establishing that the advice is poor. It strengthens the case for documenting the borrower’s understanding and providing access to an explanation with no financial interest in whether the transaction closes.

Sometimes that explanation should lead a borrower to decline the loan. If there is no credible route to repayment within the term, expensive financing may simply postpone a necessary sale while consuming more equity. Selling and renting, or downsizing, may leave the borrower better off. Debt consolidation deserves similar scrutiny: moving credit card balances onto a mortgage puts the home behind debts that were previously unsecured. If the spending problem continues, the borrower may end up with both a larger mortgage and new card balances.

Better-informed borrowers will mean some deals do not happen. That is the point.

Lenders have a commercial interest in this outcome. A mortgage need not lose principal to become a poor investment. Missed interest, repeated extensions, legal costs and a prolonged sale can erode returns even when the collateral ultimately covers the debt. CMHC’s spring 2026 report found that credit-impaired single-family loans at the largest mortgage investment entities roughly doubled between the third quarter of 2023 and the third quarter of 2025.

The consequences also extend beyond the lender that arranged the transaction. Investor losses undermine confidence, while failures invite rules that apply across the industry. Ontario’s February 2026 statutory review linked recent mortgage administrator failures to significant investor losses and recommended reviewing standards for administrators. Better borrower outcomes and better industry economics are connected.

The difficulty is deciding who pays. More than 1,700 private lenders registered mortgages in Ontario in 2024. An individual firm funding consumer education bears the expense while competitors share the benefit. That weakens the incentive to invest enough and provides a practical case for collective funding.

Such a service would need more than an industry cheque. Independent oversight, transparent funding and no compensation tied to completed mortgages would give it a basis for credibility. Its purpose should be to help borrowers understand and question a proposed transaction, including recognising when an exit depends on assumptions they cannot reasonably meet.

AI could lower the cost of providing that explanation for individual circumstances. Britain’s Financial Conduct Authority found that its best AI-generated explanations of financial terms were substantially easier to read than the human-written originals. Easier reading, however, does not establish that a borrower understands a mortgage or can afford it.

The instructions given to the system matter. An MIT working paper examining financial misconceptions found that AI’s ability to correct them depended on how it was directed; one condition instead reinforced mistaken beliefs. A borrower explanation service would therefore need to be tested for accuracy and understanding, with its effect on borrower outcomes measured from the outset. It would support the broker’s work while leaving responsibility for suitable recommendations with the broker.

Brokers and lenders can act before any shared service exists. Put the total cost, the proposed exit and the consequences of a failed exit on one page, in dollars, before signing and again before renewal. Ask borrowers to explain those obligations in their own words. Where the plan depends on refinancing, identify what must change for another lender to accept the borrower.

Private financing can solve a temporary problem. It becomes much harder to defend when the borrower does not understand the price of the time being purchased. The industry has the expertise, the technology and a commercial reason to improve that understanding. It should organise those resources around a standard every borrower can use before committing their home.

Five key points

1. Private lenders accounted for about one in six Ontario mortgage registrations in 2024. The priority is ensuring borrowers understand the transactions already taking place.
2. Borrowers need a credible exit, a clear account of total costs and an explanation of what happens if refinancing or repayment fails.
3. Regulatory findings expose shortcomings in documentation and cost disclosure within the files examined. A signature alone does not establish understanding.
4. Failed transactions can erode lender returns and industry confidence even when principal is recovered. Better borrower outcomes have a commercial value.
5. Collective funding could support an independently governed explanation service. AI could reduce delivery costs, but its accuracy and effect on borrower understanding must be tested.

Tracy Valko is CEO and Principal Broker of A.I.M.I. Collective Mortgage Group. She has spent 27 years in the mortgage business and holds the Certified Canadian Reverse Mortgage Consultant designation.

Hamid Akbari is the founder and CEO of Blanc Labs, which builds AI agents for lenders. He spent ten years building digital and AI products inside regulated financial institutions.