How to Invest in Private Mortgages in Canada: A Practical Guide
July 6, 2026 | Posted by: Alex Vinarski
How to Invest in Private Mortgages in Canada: A Practical Guide
Private mortgage investing offers Canadians a way to earn steady, attractive returns—typically 6-16% annually—backed by real property. Unlike the stock market's volatility, mortgage investments provide predictable income secured by tangible assets.
Two Ways to Invest
Option 1: MIC (Mortgage Investment Corporation) – Hands-Off
A MIC pools money from multiple investors to fund a diversified portfolio of private mortgages.
Key points:
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Minimum: As low as $5,000-$25,000
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Registered accounts eligible: RRSP, TFSA, RESP
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Returns: 6-11% Distributed as dividends (taxed as interest income)
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How to choose: Research MICs online—review their track record, management team, and client testimonials. Look for transparency in reporting and clear communication about their portfolio.
Best for: Investors who want passive, diversified exposure without the hands-on work.
Option 2: Direct Mortgage Lending – More Control, More Involvement
Direct lending means you fund a specific mortgage to a specific borrower. You earn the interest directly, but you also take on the responsibility of evaluating the deal.
Key points:
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Minimum: $25000
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Registered accounts eligible: RRSP, TFSA funds can be used
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Returns: 8-16%, Higher than MICs, but concentrated risk
The Direct Mortgage Lending Process: Professionals at Every Step
If you choose direct lending, you don't do it alone. At every stage, licensed professionals protect your interests:
1. Mortgage Broker
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Vets the borrower's application and credit history
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Assesses the borrower's exit strategy
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Presents the deal to you with all relevant details
2. Certified Appraiser
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Conducts an independent property valuation
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Confirms the Loan-to-Value (LTV) ratio is conservative
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Ensures the property is worth what the borrower claims
3. Your Lawyer (Lender's Lawyer)
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Performs a title search to confirm clean ownership
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Drafts and registers the mortgage on the property title
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Ensures your legal priority position (first or second mortgage)
4. Borrower's Lawyer
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Represents the borrower's interests
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Reviews all documents on their behalf
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Ensures the borrower understands the terms
5. Property Title Registration
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The mortgage is registered on title at the land registry office
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This is your legal security—the borrower cannot sell, refinance, or encumber the property until you sign a discharge form
Who Pays for What?
The borrower pays for all expenses:
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Appraisal fee
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Your lawyer's fees (lender's lawyer)
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Their own lawyer's fees
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Broker's fee (typically 1%-2% of the loan amount, paid from proceeds)
You receive your interest and principal without deducting these costs—they come out of the borrower's end.
Advice for New Direct Lenders
If you're new to private mortgage investing, follow these guidelines:
1. Stick to Residential Mortgages
Avoid construction, commercial, or land development loans until you have experience. Residential properties (single-family homes, condos, townhouses) are easier to value and sell if needed.
2. Focus on Urban Centres
Properties in major cities (Vancouver, Toronto, Calgary) are more liquid and easier to appraise accurately. Rural or remote properties can be harder to sell in a default scenario.
3. Be Conservative with LTV
Stick to 65-75% LTV for first mortgages. This provides a significant equity cushion in case of market fluctuations.
4. Know Your Exit Strategy
The borrower must have a clear plan to repay the loan—selling the property, refinancing with a bank, or using other funds. Without a viable exit strategy, the risk increases significantly.
The Bottom Line
Private mortgage investing can be a powerful addition to your investment portfolio. Whether you choose the hands-off approach of a MIC or the control of direct lending, the key is to start with a clear understanding of the process and the professionals involved.
For new direct lenders: Residential only, urban only, conservative LTV, and always work with experienced professionals.
More information on private mortgages here: https://www.ipotekacanada.com/index.php/private-mortgages
