The first mortgage is with a bank. The second came through a broker when the business needed cash or the taxes fell behind. Twelve months later the renewal letter arrives with a fresh fee attached, a higher rate, and a payout figure thousands of dollars more than you expected. When you ask how the number was worked out, you receive a one-line reply from the lender’s lawyer.
Private mortgages are a legal and widely used part of the lending market, particularly for borrowers who do not qualify at a bank. They are also expensive, short-term, and sometimes poorly explained. Many of the disputes that come out of them are not about whether the borrower owes money. They are about how much is owed, and what the lender can properly charge along the way.
This article is general information about private mortgages in Ontario. It should not be read as legal advice about your own loan. If you already have a notice of sale or a statement of claim, your time to respond may be very short, so get your papers to a lawyer now.
Start With the Paper You Actually Signed
A private mortgage deal usually involves several documents, and they do not all say the same thing:
- A commitment letter or term sheet from the lender or broker.
- The registered charge on title, along with the standard charge terms that it refers to.
- Disclosure from the mortgage brokerage about the cost of borrowing.
- A solicitor’s reporting letter, plus any independent legal advice certificate.
- Renewal or amending agreements.
- Payment records and any statements you received.
Ask your lawyer or the broker for any you are missing. The lawyer who acted for you on the deal should have a copy of the file, and a title search will show what was registered. Many disputes change once all these pieces are laid side by side. A fee mentioned in the commitment may not be in the charge, or the rate on renewal might not match what was promised.
The True Cost of the Loan
The headline interest rate may be just the start. Common charges include lender fees, broker fees, a holdback of the first several months of interest, legal fees, renewal fees, administration fees, and an appraisal cost. A loan advertised at 12% can cost considerably more once these are counted, particularly on a short term, and more still when a further fee is charged to renew.
Under federal law, a mortgage must make the rate clear. Section 6 of the Interest Act deals with mortgages on real property where payments are blended or made on a sinking-fund plan. If the mortgage doesn’t state the principal and the interest rate calculated yearly or half-yearly, no interest is chargeable, recoverable, or payable on the advances made. This is a technical provision, and it does not apply in every situation. It is still worth checking.
Ontario’s mortgage brokering law also requires licensed brokerages to give disclosure, and for some loans, disclosure of the cost of borrowing. The Financial Services Regulatory Authority of Ontario (FSRA) licenses mortgage brokers, agents, and administrators, and you can complain to it about their conduct. A complaint doesn’t by itself change what you owe, but it could matter.
When the Default Rate Goes Up
Many private mortgages say that the rate rises if you miss a payment or that you must pay a large bonus upon default. This is where a borrower may have a very strong argument. Section 8 of the Interest Act prohibits any fine, penalty, or rate of interest on arrears of principal or interest secured by a mortgage on real property that increases the charge on the arrears beyond the rate payable on principal money not in arrears. Section 9 says that anything paid contrary to this can be recovered or deducted.
In plain terms, if the regular rate is 10%, the lender cannot get around section 8 by charging 15% just because you defaulted. Disguising the increase, for example as a “discount” for payments made on time, might also fail, because courts look at the substance of the clause. The Supreme Court of Canada considered this in Krayzel Corp. v. Equitable Trust Co., 2016 SCC 18, holding that the section applies to provisions that have the effect of increasing the charge on arrears, regardless of how they’re framed.
Not every default charge will fall under this section. Reasonable fees that reflect a lender’s real administrative costs may be treated differently, and the lines can be debated. A lump-sum penalty is a natural subject for a closer look. The statement should be checked item by item.
Fees, Legal Costs, and the Payout Statement
Payout and default statements can be surprisingly hard to read. Lines may include enforcement fees, “management” or “monitoring” charges, NSF fees, property tax payments made by the lender, insurance added on, appraisal costs, and legal bills.
Here are some useful questions to ask about each line:
- Which clause in the charge permits this?
- Was the expense actually incurred, and is there an invoice?
- Is the amount reasonable?
- Has it been counted twice, for example both as an administration fee and in legal fees?
- Is interest being charged on amounts that shouldn’t accrue it?
Under section 22 of the Mortgages Act, a borrower in default who has the right to put things right can, by written notice, require the lender to provide a written statement of the amount of principal or interest in default, or the nature of the default, and of the expenses necessarily incurred. That can be a helpful way to pin down numbers. There are limits on what a lender can require when the right is being exercised, and on when the right applies.
If a payout amount is in dispute and you have a sale or refinance about to close, you do not necessarily have to choose between missing the closing and accepting the figure. In many deals, the disputed amount can be paid under protest, or a portion may be held by a lawyer in trust while the issue is resolved, if the lender agrees or the court orders. Mortgage costs can also, in some cases, be referred to a court official for assessment. Each of these needs to be set up carefully.
Renewals and Rollovers
Private mortgages are commonly one-year terms, and a renewal may be presented at the last minute. A lender generally has no obligation to renew unless the contract says so. That creates a pressure point, since the borrower cannot always refinance in time, and each extension can add a fee.
Read a renewal agreement carefully before you sign. It may do more than extend the term, including:
- Adding unpaid fees to the principal.
- Increasing the rate.
- Containing a release of past claims, or an acknowledgment that the amounts owing are correct.
- Adding new guarantors or additional collateral, such as another property.
A clause admitting that the balance is right can make a later dispute harder, though not always impossible. If you have a concern, record it in writing before you sign, and try to get some legal advice even when the timelines are tight. For mortgages with terms longer than five years, section 10 of the Interest Act can allow individuals, though not joint stock companies or other corporations, to pay it off after five years with three months’ interest, but this will rarely come up with short private loans.
Unconscionable Loans
Ontario’s Unconscionable Transactions Relief Act gives the court an unusual power. Where, having regard to the risk and all the circumstances, the court finds that the cost of a loan is excessive and that the transaction is harsh and unconscionable, it can reopen the deal, take a new account, relieve the debtor of paying more than what is fairly due, order repayment of any excess, and set aside or revise the agreement. “Cost of the loan” is broad, and includes interest, discount, bonus, commission, and brokerage fees.
Borrowers should have realistic expectations here. High rates by themselves are not enough. A private lender takes on more risk, and courts recognize that. Factors that may help are an excessive overall cost, a vulnerable borrower, a lack of real legal advice, misleading explanations, and a lender who obviously took advantage. A sophisticated business owner who borrowed with a lawyer’s advice is likely to have a much harder time.
The Criminal Code also makes it an offence to charge above a criminal rate of interest. The current criminal rate is above 35% annual percentage rate, for agreements made on or after January 1, 2025, and agreements before then were subject to the earlier test of above 60% effective annual rate. Exceptions exist for some commercial loans, and these depend on the borrower not being an individual, the purpose of the loan, and the amount advanced. Fees count in the calculation, so a short-term private loan with heavy fees should be checked, even if the stated rate seems lower. A breach may also affect how far the lender can enforce the loan.
If the Lender Moves to Enforce
A lender in Ontario typically enforces either by power of sale, by suing on the debt, or by both. Under the Mortgages Act, a notice of sale under a mortgage’s power of sale can’t be given until the default has lasted at least 15 days, and the sale can’t happen for at least 35 days after the notice is given. Other timing rules can apply, and no further steps can usually be taken in the notice period without a court order.
A disagreement about the numbers does not automatically stop any of this. The lender is not generally prevented from selling just because you dispute the amount, and courts can be cautious about restraining a sale unless certain conditions are met, which can include paying money into court. Waiting until the eve of sale makes everything more difficult.
Options often include paying the arrears within the applicable cure period, refinancing, selling the property yourself, or starting a claim to challenge the charges. If you have multiple mortgages, each with a different lender, a default under one can trigger the others. The lender must also take reasonable steps to obtain a fair price if it sells. If it doesn’t, that may be a separate claim.
Guarantors, Spouses, and Business Loans
Private mortgages commonly appear in family and small business arrangements in Peel: a spouse who signs to clear title, or parents who agree to act as guarantor. People who sign in those roles sometimes do not realize how exposed they are. A person who signs without understanding the deal and without independent legal advice may have arguments, depending on the facts, and a lawyer should review those promptly.
Business borrowers should note one other point. A loan made to your numbered company may not receive the same treatment as a home loan to you personally. The prepayment right in section 10 of the Interest Act does not help corporations, for instance, and the commercial loan exemptions change how the criminal interest rate applies.
How to Prepare
If you think your private mortgage charges are wrong:
- Write to the lender or its lawyer and ask for a complete statement, including how it was calculated.
- Keep paying what you can while the dispute is resolved, if you can do so and your lawyer agrees. Keep proof of each payment.
- Build a simple spreadsheet showing advance dates, each payment, and each fee.
- Save the broker’s messages about what the loan would cost.
- Don’t sign any new renewal, forbearance, or acknowledgment without having it reviewed.
- Mark limitation dates. A claim for an overcharge is generally subject to a two-year basic limitation period, with some complications about when it starts.
You may also want to contact a licensed insolvency trustee if the debt is unmanageable overall, as a consumer proposal or bankruptcy will affect unsecured debts, even though it does not generally stop a secured lender.
Most of these disputes end with a corrected number and a negotiated exit rather than a judgment. A precise letter that cites the charge terms can sometimes move a lender quickly. If you have a private mortgage on a home or commercial property in Brampton and something doesn’t add up, our real estate and mortgage litigation page describes how these claims work, or you can contact the firm and send over your commitment letter, charge, and payout statement for review.