Private mortgages are often used when bank or credit union financing is not available. While they provide speed and flexibility, they generally come at a higher cost.
To decide whether a private mortgage makes sense, homeowners need to understand all cost components, not just the interest rate. This includes lender fees, broker fees, legal costs, and how long the loan will be in place.
This guide breaks down private mortgage costs in Canada using realistic ranges and examples.
Typical Private Mortgage Interest Rates in Canada
Private mortgage interest rates vary widely depending on risk.
In Canada, common private mortgage rate ranges include:
- 8% to 10%Lower-risk scenarios with strong equity and clear exit plans
- 10% to 14%Moderate-risk situations, such as recent credit issues or self-employed income
- 14% to 18%+Higher-risk scenarios with higher LTVs or urgent financing needs
These rates are typically interest-only and calculated annually, but paid monthly.
What Affects the Interest Rate You Are Offered?
Private mortgage rates are not standardized. They are set based on risk factors, including:
- Loan-to-value (LTV) ratio
- Property type and condition
- Location of the property
- Borrower’s credit history
- Strength of the exit strategy
- Urgency of funding
Lower risk generally leads to lower rates, while higher risk increases borrowing costs.
Understanding Loan-to-Value (LTV) and Pricing
LTV is one of the most important pricing drivers.
Example:
- Property value: $800,000
- Total mortgage debt: $560,000
- LTV: 70%
Lower LTVs reduce lender risk and often result in:
- Lower interest rates
- Reduced lender fees
Higher LTVs increase risk and typically raise both rates and fees.
Common Private Mortgage Fees in Canada
Interest is only one part of the cost. Fees can significantly affect the total amount paid.
Lender Fees
Private lenders often charge a lender fee, commonly:
- 1% to 4% of the loan amount
This fee compensates the lender for risk and short-term capital use.
Broker Fees
If a mortgage broker arranges the loan, a broker fee may apply.
Typical broker fees range from:
- 1% to 3% of the loan amount
This fee is often included in the total financing cost.
Legal Fees
Legal costs are required to register the mortgage and review documentation.
Typical legal costs:
- $1,500 to $3,000, depending on complexity
Appraisal Fees
Most private lenders require an appraisal.
Typical appraisal cost:
- $400 to $700
Example: Total Cost of a Private Mortgage
Scenario:
- Loan amount: $300,000
- Interest rate: 12%
- Term: 12 months
Estimated costs:
- Annual interest: ~$36,000
- Lender fee (2%): ~$6,000
- Broker fee (2%): ~$6,000
- Legal + appraisal: ~$2,500
Estimated total cost: ~$50,500 (excluding principal)
This example shows why evaluating total cost matters more than focusing only on the rate.
Monthly Payment Example
Most private mortgages are interest-only.
Using the same example:
- Loan: $300,000
- Rate: 12%
Monthly interest payment:$3,000 per month (approx.)
Principal is typically repaid at the end of the term through refinancing or sale.
Short-Term Cost vs Long-Term Impact
Private mortgages are designed for short-term use.
If used for:
- 6–12 months
- With a clear exit strategy
The total cost may be manageable.
However, costs increase significantly if:
- Loans are renewed multiple times
- Fees are charged again at renewal
- Rates increase
Long-term use can become expensive quickly.
Is a Private Mortgage Ever Worth the Cost?
In some cases, the cost may be justified.
Examples include:
- Preventing foreclosure or power of sale
- Solving urgent tax or legal issues
- Bridging a short gap before refinancing
The key is whether the financial benefit outweighs the total cost.
Questions Homeowners Should Ask About Pricing
Before accepting a private mortgage, homeowners should ask:
- What is the total cost, including all fees?
- Is the interest rate fixed for the term?
- What fees apply at renewal?
- How realistic is the exit strategy?
- What happens if the loan cannot be repaid on time?
Clear answers reduce pricing surprises.
Important Pricing Disclaimer
Private mortgage pricing varies by lender, property, location, and risk level.Rates and fees are examples only and may change based on individual circumstances.
Homeowners should always review full terms with licensed professionals before proceeding.
Final Thoughts
Private mortgages provide access to financing when traditional options are unavailable, but they come at a higher cost.
Understanding real rates, fees, and examples allows homeowners to decide whether private financing fits their short-term needs and financial plan.
Note: Rates and costs vary based on your credit profile, available equity, and location.