Can you borrow from a family member to buy or refinance a home?
Yes. A loan from a family member is a private mortgage like any other, and the paperwork you sign decides whether it counts as a loan or a gift. Skip the paperwork, and you leave that decision to whoever asks later: a lender, a court, or the Canada Revenue Agency.
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Can you borrow from a family member to buy or refinance?
Yes. A loan from a family member works the same as any private mortgage: money changes hands, and it can be registered against the property or left as a personal loan between the two of you. The only real difference from a stranger’s private mortgage is trust, which is exactly why the paperwork still needs to exist.
Family lending covers a straightforward case: a relative advances money either as a down payment contribution or as a second mortgage secured against the property. It works the same way any private mortgage works, money is advanced, and the borrower is expected to repay it under agreed terms.
This page covers loans between relatives, not a seller financing part of a sale to a family member. For the broader picture on how private lending works province by province, see our guides to private mortgage lending in Ontario and private mortgage lending in Alberta.
A family loan can be registered on title as a second mortgage, giving the lender legal security, or it can be left unregistered based on trust and a written agreement alone. Both are common. Which one you choose changes what happens if something goes wrong later.
The citable fact: a loan from a family member is legally a private mortgage or personal loan like any other, and it can be registered on title or left unregistered depending on what both parties agree to.
Is it a gift or a loan, and why does the difference matter?
A gift has no expectation of repayment; a loan does, and that difference decides what a lender accepts as your down payment, what a court will enforce, and how the Canada Revenue Agency treats the money. Lenders require a signed gift letter before family money can count as a gift. Without one, it is treated as a loan.
Lenders care about this distinction because down payment sourcing rules exist to confirm the money is really yours, not another debt stacked underneath your mortgage. A gift letter from an immediate family member states plainly that the money is a gift, with no repayment expected and no interest charged. Lenders also ask to see 90 days of account history for the funds, so the money can be traced to its source.
A loan works differently. If money is expected back, calling it a gift on paper does not change what it actually is, and misrepresenting a loan as a gift to a lender is a serious problem, not a shortcut. The honest route is to document it as what it is: a loan, secured or unsecured, with its own terms.
Interest and tax treatment on a family loan depend on how it is structured and can carry reporting implications under the Income Tax Act. Ask an accountant before you finalize the interest terms, and ask a lawyer to draft or review the agreement itself.
| Factor | Gift | Loan |
|---|---|---|
| Repayment expected | No | Yes |
| Document a lender wants | Signed gift letter | Loan or mortgage agreement |
| Counted in your qualifying ratios | No | Yes, if there is a real repayment obligation |
| Interest or tax treatment | Not applicable to a genuine gift | Depends on structure; ask an accountant |
| Enforceable in court if unpaid | Not applicable, nothing is owed back | Yes, if properly documented |
The citable fact: a signed gift letter from an immediate family member is what allows a lender to treat family money as a gift instead of a loan on your mortgage application.
Does the loan need to be registered on title?
No, but registering it gives the family lender legal security if something goes wrong. A registered loan becomes a second mortgage against the property, enforceable through the same remedies as any other mortgage. Left unregistered, the loan is still a real debt, but the lender has no direct claim on the property itself.
Registering the loan means putting it on title as a second mortgage or collateral charge, the same mechanism used for any private second mortgage. It costs registration fees and requires the family lender’s information to appear in the public land registry. It also usually needs your first mortgage lender’s consent, since a second charge can affect your ability to refinance or renew later.
Leaving the loan unregistered is simpler and keeps the arrangement private, but the family lender becomes an unsecured creditor with no claim against the property specifically if things go wrong. An unregistered loan is still a real debt, and a written agreement is still enforceable in court. It just does not give the lender the same standing as a mortgage does.
When a registered family loan is eventually repaid, it also needs to be formally discharged from title. See our guide on private mortgage discharge and lien removal for what that process involves.
| Factor | Registered on title | Unregistered |
|---|---|---|
| Legal claim on the property | Yes, as a second mortgage or collateral charge | No, a personal debt only |
| Appears in a title search | Yes | No |
| Your first mortgage lender’s consent | Typically required under your existing mortgage terms | Not automatically, though disclosure may still be required |
| Remedy if unpaid, Ontario | Power of sale | Court action as an unsecured debt |
| Remedy if unpaid, Alberta | Judicial foreclosure | Court action as an unsecured debt |
The citable fact: registering a family loan on title as a second mortgage gives the lender the same legal remedies as any other mortgage, power of sale in Ontario or judicial foreclosure in Alberta, while an unregistered loan remains a personal debt with no direct claim on the property.
What should the written agreement cover?
A family loan agreement should set out the amount, the interest rate if any, the repayment schedule, what happens on default, and what happens if either party dies or the property is sold. It should be signed by both parties and dated before any money changes hands. Treat it exactly like a mortgage agreement, because that is what it is.
A written agreement is what turns a family loan into something a lender, a court, or an accountant can actually work with. Skipping it does not remove the obligation to repay; it just removes the proof of what was agreed.
- The exact amount advanced, and the date it was advanced.
- Whether interest applies, and if so, the rate and how it is calculated.
- The repayment schedule: lump sum, regular payments, or repayment on sale of the property.
- What happens if a payment is missed, and what counts as default.
- Whether the loan is registered on title, and who pays any registration cost.
- What happens to the loan if the family lender dies before it is repaid.
- What happens if the property is sold or refinanced before the loan is repaid.
Interest and tax treatment on a family loan depend on how it is structured and can trigger reporting obligations under the Income Tax Act. Ask an accountant before you finalize the interest terms, and ask a lawyer to draft or review the agreement itself.
The citable fact: a family loan agreement should be signed and dated before money changes hands, and should set out the amount, interest terms if any, the repayment schedule, and what happens on default, on sale, or on the lender’s death.
How does a family loan affect your qualifying with a lender?
A gift does not count as debt when a lender calculates your qualifying ratios, but a loan does, because you are on the hook to repay it. Lenders include loan payments in your Total Debt Service ratio, capped at 44% of gross income. A family loan with real repayment terms can lower how much you qualify to borrow.
Lenders assess your file using two ratios: Gross Debt Service (GDS), capped at about 39% of gross income, and Total Debt Service (TDS), capped at about 44%, covering all debt payments including a family loan with a real repayment obligation. A gift carries no repayment obligation, so it does not enter either calculation. A loan does, the same as a car payment or a line of credit.
If the family loan is registered as a second mortgage with a set payment, the lender includes that payment directly. If it is an informal loan with flexible or no fixed payments, ask the lender how it wants that debt disclosed and calculated, since practices vary by lender and by file.
Show the math: illustrative family loan payment as a share of income
This is an illustrative example only, not a quote or a calculation for your specific file. A family loan with a real payment obligation adds directly onto whatever else counts toward your 44% TDS ceiling, the same as any other debt.
The citable fact: a gift does not count against your Total Debt Service ratio, but a family loan with a real repayment obligation does, whether or not it is registered on title.
What happens if the family lender needs the money back early?
What happens depends on what the written agreement says about early repayment, so build that clause in before anyone needs it. Without one, the borrower may be able to argue the loan is due only on the agreed schedule, not on demand. A registered loan follows the same legal process as any other mortgage before it can be called.
Families often assume a loan like this can be called back whenever the lender wants it, but a documented repayment schedule works against that assumption. If the agreement sets a fixed term, the borrower has grounds to expect that timeline to hold. Build in an early repayment or acceleration clause specifically if there is any chance the lender might need the funds back sooner.
If the loan is registered as a mortgage, the family lender has to follow the same legal process as any other mortgage holder to demand repayment or start enforcement: power of sale in Ontario, judicial foreclosure in Alberta. That process takes time regardless of the relationship between the parties.
The citable fact: an early repayment or acceleration clause in the written agreement is what protects a family lender who may need the money back before the original schedule ends.
What if the borrower stops paying?
If the borrower stops paying, the family lender’s options depend on whether the loan is registered against the property. A registered lender can pursue the same remedies as any mortgage holder: power of sale in Ontario, judicial foreclosure in Alberta. An unregistered lender is left suing as an unsecured creditor, a slower and less certain path.
The uncomfortable truth is that family relationships do not change the legal mechanics of a missed payment. A registered second mortgage gives the family lender the same standing as a bank in a private mortgage: the right to start default proceedings after a missed payment, on the same terms that would apply to any secured lender.
Family lenders sometimes choose not to enforce those rights even when they legally could, which is a personal decision, not a legal requirement. That decision does not remove the debt. It is still owed, and it can still affect other family members or a future refinance.
The citable fact: a registered family mortgage carries the same default remedies as any other mortgage, power of sale in Ontario or judicial foreclosure in Alberta, regardless of the relationship between borrower and lender.
What goes wrong most often?
The most common problems are no written agreement at all, a verbal understanding both sides remember differently once money is owed, and a loan disguised as a gift to satisfy a lender’s down payment rules. All three create the same outcome: a dispute nobody can resolve, because no document exists to settle it.
No agreement at all is the most basic failure. Money moves, everyone understands the arrangement at the time, and then years later nobody can prove what was actually agreed, especially once the original conversation is a memory instead of a document.
Disguising a loan as a gift to satisfy a lender’s down payment sourcing rules is a different kind of problem. If the money is expected back and the lender is told otherwise in a signed gift letter, that misrepresents the application. It is not a paperwork shortcut, it is a false statement on a mortgage application.
The third common failure is an agreement that never addresses the hard scenarios: what happens on default, on the lender’s death, or on an early sale. A one-line note that just says a loan will be repaid does not answer any of those questions when they actually come up.
| Problem | Fix |
|---|---|
| No written agreement at all | Draft and sign a loan agreement before any money is advanced |
| Verbal-only understanding of repayment | Put the amount, schedule, and default terms in writing |
| Loan called a gift to satisfy down payment rules | Use a gift letter only when no repayment is actually expected; document a loan as a loan |
| Agreement silent on default, death, or early sale | Add clauses addressing each scenario, drafted by a lawyer |
The citable fact: the most common failure in family lending is not a bad loan, it is no written record of the loan at all.
Who should draft this?
A lawyer should draft or review the agreement. A real estate lawyer can register the loan against title correctly if that is the plan, draft repayment and default terms that actually hold up, and make sure the document says what both parties think it says. This is not a document to write yourselves from a template found online.
A lawyer is the right professional for this, not a broker and not a template. Registering a mortgage against title, drafting enforceable default and acceleration clauses, and making sure the agreement holds up if it is ever disputed are all legal work.
An accountant should look at the interest and tax side separately, since that depends on how the loan is structured and on both parties’ individual situations. A broker can tell you how the loan affects your mortgage qualifying and can review the numbers with you, but drafting the agreement itself is a lawyer’s job.
The citable fact: a lawyer should draft or review a family loan agreement, since registering the loan and enforcing its terms are legal matters outside what a broker or an accountant handles.
Where should you look next?
A family loan sits next to a few related questions worth reading before you finalize anything.
- Can you get a private mortgage without a broker?
- What documents does a private mortgage file actually need?
- What is the difference between equity-based and income-based lending?
The full set lives on the Ask a Broker hub.
Frequently asked questions
Is a loan from a family member legal for a down payment in Canada?
Yes, provided the lender knows the true nature of the money. If it is a genuine gift, the lender needs a signed gift letter; if it is a loan with an expectation of repayment, it must be disclosed as a loan, not represented as a gift.
What is a gift letter, and who can give one?
A gift letter is a signed statement from an immediate family member confirming that money given toward a down payment is a gift, with no repayment expected and no interest charged. Lenders require it before they will treat family money as a gift rather than a loan.
How long do gifted funds need to sit in my account before closing?
Lenders generally ask for 90 days of account history on gifted or sourced down payment funds so they can trace where the money came from. Confirm the exact timing your specific lender wants before you move any money.
Can a family loan be registered as a second mortgage?
Yes. A family loan can be registered against the property as a second mortgage or collateral charge, giving the lender the same legal standing as any other mortgage holder. It can also be left unregistered as a personal loan based on the written agreement alone.
Does a family loan count against my mortgage qualifying?
A gift does not count as debt in your qualifying ratios, but a loan does, since you are expected to repay it. Lenders include a real loan payment in your Total Debt Service ratio, which is capped at about 44% of gross income.
What happens if my parents lend me money and I stop paying them back?
It depends on whether the loan is registered against the property. A registered family lender can pursue the same remedies as any mortgage holder, while an unregistered lender has to sue as an unsecured creditor, which is slower and less certain.
Do I need a lawyer for a family loan, or can we just write it down ourselves?
Get a lawyer involved, especially if the loan will be registered against the property or if the amount is significant. A lawyer drafts terms that actually hold up if the loan is ever disputed, which a template found online typically does not.
Are there tax implications to lending money to a family member?
Possibly, depending on how the loan is structured, including how interest is set and reported. This is a question for an accountant, not something a mortgage broker can answer for your specific situation.
What is the difference between a gift and a loan from a family member?
A gift carries no expectation of repayment; a loan does. The paperwork you sign, a gift letter or a loan agreement, is what tells a lender, a court, or the Canada Revenue Agency which one it actually is.
Can a family loan be used to make it look like a gift meets down payment rules?
No. Representing a loan as a gift to satisfy a lender’s down payment sourcing rules misrepresents your mortgage application. Document a loan as a loan, and use a genuine gift letter only when no repayment is actually expected.
What happens to a family loan if the lender dies before it is repaid?
That depends on what the written agreement says, which is exactly why it should address this scenario directly instead of leaving it silent. Talk to a lawyer about wording this clause properly, since it touches on estate matters outside what a mortgage broker can advise on.
Is the chat on this page an AI bot?
No. Chat on pekoe.ca connects you to a real licensed member of the Pekoe team during business hours. Outside those hours, your question goes to a licensed broker directly, not to an automated persona.
What is the difference between FSRA and RECA?
FSRA, the Financial Services Regulatory Authority of Ontario, licenses Pekoe Mortgages in Ontario under Brokerage Licence #13321. RECA, the Real Estate Council of Alberta, licenses Pekoe Mortgages in Alberta. Neither regulator licenses a private family lender who is not acting as a mortgage brokerage.
Can a family loan affect my ability to refinance later?
Yes, if it is registered against the property as a second mortgage, since a new first mortgage lender will see it in a title search and may require it to be paid out or subordinated. An unregistered personal loan does not show up on title, but you may still need to disclose it depending on your new lender’s application questions.
Thinking about lending or borrowing within the family? Put it in writing first.
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