As a subset of private credit – the fastest-growing alternative asset class, according to Morgan Stanley – whole mortgage investments have emerged as a dominant force in the alternative investment landscape. Their growth is being fueled by a mix of economic, regulatory, and market factors that have expanded investor access to the private mortgage market.
A whole loan mortgage investment involves funding an entire mortgage – typically by an individual private lender or institutional investor – who assumes full responsibility for the loan’s risk and return, collecting both interest and principal payments directly from the borrower.
This article explores how current Canadian real estate trends—ranging from housing supply and demand imbalances to shifting regulatory landscapes—can significantly influence the performance and stability of whole loan investments. By examining factors such as interest rate fluctuations, demographic shifts, and regional market variations, prospective investors can learn more about the risks and opportunities of private mortgage investing.
What Are Whole Loan Investments?
In Canada, a whole loan mortgage investment involves directly purchasing an individual mortgage loan—secured by a residential or commercial property—by an individual private lender or institutional investor. The investor owns 100% of the loan, not just a portion. In exchange for providing the loan, the investor collects all principal and interest payments from the borrower. Whole loan mortgages are typically short-term – 12 months, on average – and offer higher interest rates to compensate investors for retaining the full credit risk associated with these loans.
Because whole loans are direct, one-to-one transactions between lender and borrower, they allow for greater customization, faster funding, and often lower transaction costs. While investors retain full credit risk, they also gain the potential for higher returns, along with enhanced control and transparency compared to pooled mortgage products. In contrast, mortgage-backed securities (MBS) and securitized mortgage products offer diversified, pooled exposure, with typically lower returns and risk, and higher liquidity.
Whole loan investments play a vital role in Canada’s lending landscape, particularly in the private mortgage space. They are commonly facilitated through non-bank financial institutions, serving as a key channel for directing capital from investors to borrowers. In a whole loan structure, lenders originate, underwrite, and service the mortgage while setting the loan terms and disbursing funds on behalf of investors. This direct investment model allows investors to participate in individual mortgage opportunities, while enabling borrowers to access tailored financing solutions that may not be available through traditional lending channels.
By bridging the gap, whole loans help fuel a more flexible and responsive lending ecosystem — one that meets the needs of a broader range of borrowers.
Overview of the Current Canadian Real Estate Market
Canada’s real estate market faces complex challenges in 2025, as a slowing economy, escalating US-led trade war, and evolving interest rate policies impact homebuying and lending activity.
Canada’s economy is experiencing a slowdown, with real GDP growth projected at 1.7% for 2025, down from 2.6% in 2024, according to S&P Global. This sharp deceleration is largely driven by escalating trade tensions with the United States, including new tariffs that have disrupted key Canadian exports. These external pressures, alongside domestic challenges such as unaffordable housing and stagnant wage growth, are contributing to heightened economic uncertainty.
In response, the Bank of Canada (BoC) has implemented a series of interest rate cuts, bringing the policy rate down from a peak of 5% to 2.75% as of May 2025.
Amid ongoing economic uncertainty, home sales across Canada have declined significantly, with the Canadian Real Estate Association (CREA) reporting a 20% drop since their recent peak in November.
However, Canada’s real estate landscape is far from uniform. While cities like Toronto and Vancouver face persistent affordability issues and regulatory constraints, such as vacancy taxes, mid-sized and rural markets offer more accessible entry points and different risk profiles.
To address affordability issues, Ontario and British Columbia have implemented measures to curb foreign speculation in local housing markets. Ontario has implemented a 25% tax on home purchases by non-residents across the entire province, while BC has applied a 20% foreign buyers’ tax in most urban regions.
Key Real Estate Trends Shaping Investment Portfolios
Several key real estate trends are currently shaping investor portfolios in Canada. After a series of interest rate hikes following the pandemic, the BoC has recently reduced interest rates, offering relief to real estate borrowers and investors. Mortgage rates have come down, providing more favorable financing conditions. Lower rates could stimulate demand in both the housing and investment markets, making real estate more accessible and appealing for investors.
However, lower mortgage rates haven’t necessarily alleviated affordability constraints, as Canada continues to experience significant housing shortages, particularly in major urban areas like Toronto and Vancouver. The scarcity of housing supply, combined with elevated demand, has led to rising property prices and fierce competition for available properties.
Cities like Toronto and Vancouver are seeing continued demand for housing, driven by factors like population growth, migration patterns, and proximity to employment centers. At the same time, the normalization of remote work has driven higher demand for housing in suburban and rural markets.
Property valuations are being influenced by these factors. Although average home prices are down from their peaks in 2022, they remain much higher than pre-pandemic levels, according to CREA.
Implications for Whole Loan Investments
For private mortgage investors, the aforementioned real estate trends affect whole loan performance, cash flow, risk management and portfolio strategies. Although rising property values are a double-edged sword, they have improved loan-to-value (LTV) ratios for borrowers. This is advantageous for investors because lower LTV ratios mean stronger collateral and reduced risk.
Stronger collateral provides investors with a greater margin of safety – if a borrower defaults, the underlying property is more likely to retain enough value to cover the outstanding loan balance. But beyond that, stronger collateral can also contribute to more reliable cash flow from interest and principal payments. That’s because loans backed by higher-quality assets tend to perform better: borrowers with more equity at stake have a stronger incentive to stay current on their payments. This increased stability reduces the likelihood of interruptions in cash flow, making returns more predictable and portfolios more resilient.
If interest rates continue to decrease in 2025, borrower prepayment behavior is likely to change. Historically, refinancing and early repayments typically increase when interest rates drop, as borrowers look to take advantage of lower borrowing costs. For whole loan investors, this can lead to higher-than-expected prepayments, potentially disrupting expected cash flow and shortening the duration of investments. While this may free up capital for reinvestment, it also underscores the importance of active portfolio management in navigating interest rate cycles.
Some of this risk can be mitigated through prepayment fees or penalties written into loan terms. These provisions help compensate investors for the lost interest income and allow for more predictable returns, even when loans are repaid ahead of schedule. Prepayment fees can also discourage unnecessary refinancing, contributing to greater cash flow stability and investment performance.
As the Canadian economy adjusts, investors must be more cautious when assessing borrower quality. With rising living costs, stagnant wages, and challenges in sectors like agriculture and manufacturing, it’s crucial to focus on a borrower’s financial stability. This involves evaluating the borrower’s debt-to-income ratio, credit score, and employment stability. This is why partnering with a reputable non-bank financial service provider with strong underwriting practices can be highly beneficial. They can ensure that a private mortgage portfolio is well diversified and employs stringent risk management practices.
Strategies for Navigating Market Shifts
In private mortgage investing, navigating market shifts requires adaptive strategies to manage risk and optimize returns, especially in a changing macroeconomic environment. Leveraging data analytics and market research can help investors stay ahead of emerging trends and evolving real estate market dynamics. Working with a full-service private mortgage firm that offers flexible, adaptive underwriting – supported by proprietary analytics – and comprehensive end-to-end support can streamline the process and help ensure sound investment decisions.
Leading private mortgage lenders regularly adjust their underwriting criteria and credit standards to align with current market dynamics. This includes modifying underwriting criteria, including maximum loan-to-value (LTV) ratios, to account for changes in property values, debt service coverage ratios and borrower credit profiles.
Conclusion and Key Takeaways
The interplay of interest rates, housing supply and demand and regulatory changes plays a crucial role in shaping the performance of whole loan mortgage portfolios in Canada. These factors influence borrower behavior, loan risk, cash flow and overall portfolio performance. Understanding how these elements interact can help private mortgage investors manage risks and optimize returns in a dynamic market.
By working with a reputable non-bank financial services provider, investors can ensure their private mortgage portfolio is well diversified and backed by rigorous underwriting standards.
CMI Financial Group employs data-driven decision-making, rigorous stress testing and flexible strategies to help investors maximize their returns in a changing environment. With more than $3 billion in successful mortgage placements and over $1 billion in assets under management, CMI is one of Canada’s leading private mortgage lenders. To learn more about private mortgage investing with CMI, contact us today to arrange a consultation with one of our experts.
