Why private rates are higher
Private lenders take on files that banks decline, which means higher risk. They lend based on equity rather than credit, they close quickly, and they fund short-term loans. The higher rate compensates the lender for that risk and flexibility. Private mortgage rates are always quoted as a range because each file is unique.
What drives the rate
Several factors influence where your private mortgage rate lands. The loan-to-value ratio is the most important, as lower LTV means less risk and a better rate. The property type and location matter, with standard Toronto residential properties getting the best pricing. The borrower's exit strategy, the clarity of income, and the condition of the property all play a role.
- Loan-to-value: lower LTV means a better rate
- Property type: single-family homes get the best pricing
- Location: Toronto and GTA properties are preferred
- Exit strategy: a clear plan reduces the lender's risk
- Term length: one-year terms are standard and cheapest
First vs second mortgage rates
A first mortgage from a private lender costs less than a second mortgage because the first lender has priority on payout. If you already have a bank first mortgage and need additional funds, a private second mortgage will carry a higher rate than a private first. The combined cost of keeping your low-rate bank first and adding a private second is often still lower than refinancing the entire amount privately.
Fees on top of the rate
The rate is not the full cost of a private mortgage. Lender fees, broker fees, appraisal costs, and legal fees are paid at closing and can add 2 to 5 percent to the total cost. These should be disclosed in writing before you commit. The full guide on our private mortgages page explains each cost in detail.
How to compare private mortgage offers
Comparing private mortgages means looking at the total cost over the term, not just the rate. A lower rate with a higher lender fee may cost more over a one-year term than a slightly higher rate with no lender fee. Ask for the full cost breakdown including rate, lender fee, and all third-party costs before deciding.
- Ask for the annual rate, not the monthly
- Include the lender fee in the comparison
- Factor in appraisal and legal costs
- Compare the same term length, usually one year
- Confirm whether payments are interest-only
Moving from private to prime
The whole point of a private mortgage is that it is temporary. The rate you pay today is a bridge cost, not a forever cost. If you use the private mortgage term to rebuild credit, stabilize income, or complete a project, you should be able to refinance into a prime mortgage at renewal and reduce your rate significantly.
Frequently asked questions
- What is a typical private mortgage rate in Toronto?
- Private mortgage rates vary by file and change with market conditions, so we do not publish specific numbers. The rate depends on your loan-to-value, property type, and exit strategy. Contact us for a quote on your specific situation.
- Are private mortgage rates fixed or variable?
- Most private mortgages are interest-only with a fixed rate for a one-year term. That keeps the payments predictable and the term short enough to exit when your situation improves.
- Why is my private mortgage quote higher than my bank rate?
- Private lenders take on files that banks decline, which carries more risk. The higher rate reflects that risk and the speed and flexibility of private lending. It is a short-term cost, not a long-term rate.
- Can I negotiate the rate on a private mortgage?
- Some flexibility exists, especially on larger loans with low LTV. A broker can present your file to multiple private lenders to create competition and bring back the best available terms.