Private lending in Ontario refers to lending arrangements between individuals or non-institutional lenders and borrowers, typically secured by real property (a private mortgage) or documented by a promissory note (unsecured or secured by personal property). While banks and credit unions are the most common sources of real estate financing, private lenders play an important role in bridging financing, second mortgages, and situations where borrowers cannot qualify for conventional institutional financing. This guide covers the key legal requirements that private lenders and borrowers in Ontario must understand.

MBLAA: The Licensing Requirement and Key Exception

Ontario's Mortgage Brokerages, Lenders and Administrators Act, 2006 (MBLAA) regulates the mortgage brokerage and lending industry in the province. Generally, anyone who carries on business as a mortgage lender must be licensed under the MBLAA. However, the MBLAA contains an important licensing exception for private individuals:

The distinction between a private individual lender and one carrying on a "mortgage lending business" is fact-specific and depends on the frequency and nature of the lending activity. When in doubt, consult with an Ontario mortgage lawyer.

Criminal Code Section 347: The 60% Rate Cap

One of the most important and frequently misunderstood rules in Canadian lending law is section 347 of the Criminal Code of Canada, which makes it a criminal offence to enter into an agreement or arrangement to receive interest at a criminal rate. A "criminal rate" is defined as an effective annual rate of interest that exceeds 60%.

Critically, this criminal rate cap applies to all lenders in Canada — banks, credit unions, payday lenders, and private individual lenders alike. There are no exceptions for "business loans" above a certain amount or for sophisticated borrowers. If the effective annual interest rate on any loan — including all fees, charges, and costs that constitute "interest" under the Code — exceeds 60% per year, both the lender and the borrower commit an offence.

How "Interest" Is Calculated Under s.347: The Criminal Code's definition of "interest" for s.347 purposes is very broad — it includes not just the stated interest rate but also all fees, charges, discounts, and costs paid by or imposed on the borrower in connection with the loan. A fee that looks small as a flat dollar amount may, when expressed as an effective annual rate on a short-term loan, exceed 60%. Always calculate the effective annual rate before setting fees and charges on a private loan.

Land Titles Act Registration of Private Mortgages

In Ontario, real property is governed by the Land Titles Act, RSO 1990, c L.5. A private mortgage on Ontario real estate must be registered on title under the Land Titles Act to be effective against third parties — including subsequent mortgagees and purchasers. The key steps for registering a private mortgage in Ontario are:

  1. The mortgage instrument must be prepared in a form acceptable for registration in the Ontario Land Registry (using the province's standard charge form or a paper document).
  2. The mortgage must be signed and witnessed according to the requirements of the Land Titles Act.
  3. The mortgage is registered electronically through the Teraview land registration system — this requires the services of a licensed Ontario lawyer or paralegal.
  4. Once registered, the mortgage appears on title and provides notice to all parties of the lender's security interest in the property.

An unregistered private mortgage is still valid between the lender and borrower (as a contractual obligation) but provides no priority protection against subsequent registered mortgages or purchasers who have no notice of the unregistered mortgage.

Priority: Land Titles Registration vs. PPSA

Priority between competing secured creditors on Ontario real estate is determined by registration priority under the Land Titles Act — the first registered mortgage generally has priority over subsequently registered mortgages. A first private mortgage (if registered first) has priority over a subsequent conventional institutional mortgage.

For personal property security (equipment, inventory, accounts receivable, vehicles — not land), priority is determined under Ontario's Personal Property Security Act, RSO 1990, c P.10 (PPSA). A secured lender taking a security interest in personal property must register a financing statement under the PPSA to protect their priority against other creditors. A private lender who provides a loan secured only by personal property (not real estate) should register under the PPSA as well as documenting the security agreement.

Priority in Practice: If a borrower has a first mortgage with a bank and grants a private second mortgage to an individual lender, the bank has priority on the property (their first mortgage was registered first). In the event of default and sale, the bank is paid first from the sale proceeds. The private lender only receives payment from any remaining balance after the first mortgage is satisfied in full. Understanding priority before lending is critical.

Power of Sale vs. Foreclosure in Ontario

When a borrower defaults on a mortgage in Ontario, the lender has two primary remedies:

Required Disclosure for Private Mortgages

Private mortgage lenders and borrowers in Ontario may have mandatory disclosure obligations depending on how the mortgage is arranged:

Promissory Note vs. Mortgage: The Distinction

A promissory note and a mortgage are two distinct documents that often work together in a private lending transaction:

In Ontario, a private mortgage transaction should include both a promissory note (establishing the personal debt obligation) and a registered mortgage (establishing the security interest in the land). Together, they give the lender both a personal claim against the borrower and a secured claim against the property.