Private mortgages are priced higher than bank mortgages. Whether that higher cost is acceptable depends largely on how long the loan is used and what problem it solves.
This guide compares short-term and long-term cost outcomes to help homeowners decide when a private mortgage may—or may not—make financial sense.
Understanding the Cost Structure of Private Mortgages
Private mortgage costs typically include:
- Higher interest rates (often interest-only)
- Lender fees
- Broker fees
- Legal and appraisal costs
Because these loans are short-term, total cost grows quickly if the mortgage is extended or renewed.
Short-Term Use: 6 to 12 Months
Private mortgages are designed for short-term use. When used within this window, costs may be manageable relative to the benefit provided.
Example (Short-Term):
- Loan amount: $300,000
- Interest rate: 12%
- Term: 12 months
Estimated costs:
- Interest: ~$36,000
- Fees (lender, broker, legal, appraisal): ~$15,000
Estimated total cost: ~$51,000
If this loan:
- Prevents foreclosure
- Solves urgent timing issues
- Enables refinancing at lower rates
The cost may be justified.
Medium-Term Use: 12 to 24 Months
Costs increase significantly when private mortgages extend beyond one year.
Additional expenses may include:
- Renewal fees
- Updated appraisals
- Continued high interest payments
Same loan extended to 24 months:
- Interest over two years: ~$72,000
- Fees (initial + renewal): ~$20,000+
Estimated total cost: ~$92,000+
At this stage, homeowners should reassess whether alternatives are available.
Long-Term Use: Beyond 24 Months
Private mortgages are generally not cost-effective for long-term borrowing.
Long-term risks include:
- Compounding fees
- Rising renewal rates
- Increased lender leverage
- Reduced refinancing options
Over multiple years, total costs can exceed what many homeowners expect.
Comparing Private Mortgage Cost to Bank Alternatives
Bank Mortgage (Example):
- Loan: $300,000
- Rate: 6%
- Annual interest: ~$18,000
- Minimal fees
Private Mortgage (Example):
- Loan: $300,000
- Rate: 12%
- Annual interest: ~$36,000
- Additional fees apply
The cost difference widens the longer the loan remains in place.
When the Cost May Be Worth It
A private mortgage may be worth the cost when:
- Financing is needed urgently
- The situation is temporary
- There is a clear and realistic exit strategy
- Lower-cost options are not currently available
In these cases, access and timing may outweigh higher pricing.
When the Cost Is Usually Not Worth It
Private mortgages are often not suitable when:
- Long-term financing is required
- There is no clear exit plan
- Repeated renewals are expected
- Lower-cost options are available
Cost effectiveness declines sharply over time.
The Role of Exit Strategy in Cost Control
Exit strategy is the single most important factor in determining whether a private mortgage is worth the cost.
Strong exit strategies include:
- Confirmed refinancing timelines
- Property sale plans
- Credit or income improvement plans
Weak exit strategies increase both cost and risk.
Questions to Ask Before Deciding
Before committing, homeowners should ask:
- How long will I realistically need this loan?
- What will the total cost be if extended?
- What alternatives exist today or soon?
- What happens if refinancing takes longer than expected?
Clear answers support better financial decisions.
Final Thoughts
Private mortgages can be valuable short-term tools, but their cost structure makes long-term use expensive.
Understanding how cost changes over time helps homeowners decide when private financing is a practical solution—and when it may create unnecessary financial strain.
Note: Rates and costs vary based on your credit profile, available equity, and location.