Interest rate
Private mortgage rates are higher than bank rates because the lender is taking on more risk or lending against a shorter, more flexible term. Rates vary based on loan to value, property type and location, with better positioned properties in cities like Toronto generally getting more favourable terms than rural properties.
Lender and broker fees
Most private mortgages include a lender fee and a broker fee, typically calculated as a percentage of the loan amount. These fees can often be added to the loan itself rather than paid out of pocket, which helps borrowers who need the financing precisely because cash is tight.
- Lender fee for underwriting the file
- Broker fee for arranging the mortgage
- Both often rolled into the loan amount
Legal and appraisal costs
Private mortgages require an appraisal to confirm property value and legal fees for both the borrower's lawyer and often the lender's lawyer as well. These are separate from the lender and broker fees and are usually paid at closing.
Renewal and discharge fees
If the private mortgage is renewed at the end of its term, there may be a renewal fee. When the mortgage is paid off, a discharge fee covers the paperwork to remove it from title. Reading the commitment letter carefully before signing avoids surprises on these smaller charges.
Frequently asked questions
- Can private mortgage fees be added to the loan amount?
- Yes, in most cases lender and broker fees are deducted from the funds advanced or added to the loan balance rather than paid separately.
- Are private mortgage fees negotiable?
- Some flexibility exists depending on the lender and the strength of the file, but appraisal and legal costs are generally fixed third party charges.
- Why do private mortgages have higher fees than bank mortgages?
- Private lenders take on more risk and offer faster, more flexible approvals, and the fee structure reflects the extra work and risk involved compared to standard bank underwriting.