Private Mortgage Costs Explained: What You Should Know Before You Borrow
If you’re considering a private mortgage in Peterborough or anywhere in Ontario, one of the first questions you’ll likely ask is:
“How much does a private mortgage actually cost?”
The answer depends on much more than the advertised interest rate.
Private mortgages typically include several borrowing costs that differ from those associated with traditional bank mortgages. Understanding these expenses before signing a commitment will help you make an informed financial decision and avoid surprises at closing.
Whether you’re refinancing, consolidating debt, purchasing a property, or accessing your home’s equity, knowing the complete cost of a private mortgage is essential.
Why Are Private Mortgages More Expensive?
Private lenders take on greater lending risk than banks and credit unions.
Unlike traditional lenders, private mortgage lenders often focus more on:
- Available home equity
- Property value
- Loan-to-value ratio
- Exit strategy
- Overall strength of the security
Because approvals rely less on strict income and credit guidelines, private lenders generally charge higher rates and additional fees to offset their increased risk.
Private mortgages are designed to provide short-term financing, usually with the goal of transitioning borrowers back to conventional lending when their financial circumstances improve.
Understanding the True Cost of Borrowing
Many borrowers compare only the interest rate.
This can be a costly mistake.
The true cost of a private mortgage includes every expense associated with obtaining the loan.
These costs may include:
- Interest
- Lender fees
- Brokerage fees
- Legal fees
- Appraisal fees
- Title insurance
- Registration costs
- Mortgage discharge fees
Evaluating the entire package—not just the rate—provides a much more accurate picture of what you’ll pay.
Interest Costs
Interest is the highest ongoing cost of any mortgage.
Private mortgage interest rates are generally higher than those offered by banks because private lenders accept borrowers who may not qualify through traditional financing.
Several factors influence your interest rate, including:
- Equity available in the property
- Credit history
- Property location
- Property condition
- Mortgage amount
- First or second mortgage position
- Planned exit strategy
Every application is individually assessed, so rates vary from borrower to borrower.
Lender Fees
Most private lenders charge a one-time lender fee for the mortgage funds.
This fee is typically calculated as a percentage of the mortgage amount and is usually deducted directly from the mortgage proceeds at closing.
Lender fees compensate the investor for providing flexible financing and assuming additional lending risk.
The amount varies depending on:
- Equity position
- Risk profile
- Mortgage term
- Property type
- Overall complexity of the file
Mortgage Brokerage Fees
Depending on the lender and transaction, a mortgage brokerage fee may also apply.
A mortgage broker works on your behalf by:
- Comparing private lenders
- Negotiating mortgage terms
- Reviewing documentation
- Coordinating approvals
- Managing the funding process
Any brokerage fee should always be fully disclosed before you accept a mortgage commitment.
Professional advice often saves borrowers significantly more than the fee itself by helping avoid unsuitable or unnecessarily expensive financing.
Legal Fees
Every private mortgage requires legal representation.
Your lawyer protects your interests while completing the legal requirements necessary to register the mortgage.
Legal services generally include:
- Title searches
- Mortgage registration
- Reviewing mortgage documents
- Paying out existing mortgages
- Registering the new charge
- Completing the closing process
Borrowers should budget for these legal costs as part of their overall borrowing expenses.
Appraisal Costs
Private lenders usually require an independent appraisal to determine the property’s current market value.
The appraisal confirms:
- Current market value
- Property condition
- Comparable sales
- Marketability
- Loan-to-value ratio
Although an appraisal represents an additional upfront expense, it provides important protection for both the borrower and lender by ensuring the financing reflects the property’s true value.
Title Insurance and Registration Costs
Additional closing costs may include:
- Title insurance
- Land registration charges
- Administrative fees
- Mortgage discharge costs
- Government registration expenses
While these costs are generally smaller than lender or legal fees, they should still be included when calculating the total cost of borrowing.
First Mortgage vs. Second Mortgage Costs
Costs may differ depending on whether you’re obtaining a first or second private mortgage.
First Private Mortgage
Often provides:
- Lower interest rates
- Lower lender fees
- Greater lender competition
Second Private Mortgage
May involve:
- Higher interest rates
- Higher lender fees
- More restrictive lending criteria
This is because second-position lenders assume greater repayment risk.
Short-Term Financing Means Lower Total Interest
Although private mortgage interest rates are higher than conventional mortgages, borrowers often overlook one important fact:
Private mortgages are generally intended to be temporary.
Many borrowers refinance into traditional financing after:
- Improving their credit
- Selling another property
- Completing renovations
- Increasing documented income
- Consolidating debt
- Resolving tax arrears
When used strategically, a private mortgage can actually reduce long-term borrowing costs by providing temporary access to financing during a challenging financial period.
How to Reduce Private Mortgage Costs
Several factors can help lower your borrowing costs.
Increase Your Equity
The lower your loan-to-value ratio, the more attractive your application becomes to private lenders.
Borrow Only What You Need
Reducing the mortgage amount can lower both interest costs and lender fees.
Have a Clear Exit Strategy
Private lenders favour borrowers who have a realistic plan for repaying or refinancing the mortgage.
Examples include:
- Upcoming mortgage renewal
- Home sale
- Increased employment income
- Debt reduction
- Credit improvement
Work With an Experienced Mortgage Broker
An experienced mortgage broker can compare multiple private lenders rather than relying on a single financing source.
This often results in:
- Better interest rates
- Lower lender fees
- More favourable repayment terms
- Flexible prepayment options
Are Private Mortgages Worth the Cost?
For many homeowners, absolutely.
A private mortgage can provide financing when traditional lenders are unable to approve the application.
Common situations include:
- Debt consolidation
- Mortgage arrears
- Self-employed borrowers
- Credit challenges
- Property purchases
- Investment opportunities
- Bridge financing
The additional costs are often outweighed by the financial opportunity or solution the mortgage provides.
The key is ensuring the mortgage forms part of a long-term financial strategy—not a permanent solution.
Why Choose Mike Cara?
Choosing the right private mortgage isn’t simply about finding someone willing to lend money.
It’s about understanding all the costs involved and selecting the financing option that best supports your long-term financial goals.
With more than 30 years of finance experience, Mike Cara helps homeowners throughout Peterborough and Ontario:
- Understand the true cost of borrowing
- Compare multiple private lending options
- Structure affordable mortgage solutions
- Develop a clear exit strategy
- Refinance back into conventional lending when appropriate
Transparency, education, and personalized advice are at the heart of every recommendation.
Frequently Asked Questions
Are private mortgage costs tax-deductible?
It depends on how the borrowed funds are used. Speak with your accountant regarding your specific tax situation.
Are lender fees paid separately?
Most lender fees are deducted from the mortgage proceeds when the mortgage closes.
Can I pay off a private mortgage early?
Many private mortgages allow early repayment, although some may include prepayment conditions or penalties. Always review your mortgage commitment carefully.
Is the lowest interest rate always the least expensive mortgage?
No. The total borrowing cost includes lender fees, legal expenses, appraisal fees, and other closing costs. Comparing the complete package is always the best approach.
How can I reduce my private mortgage costs?
Improving your equity position, maintaining a clear exit strategy, and working with an experienced mortgage broker can often result in more competitive lending terms.
Related Resources
Continue learning with these guides:
- Private Mortgage Lenders in Peterborough, ON (Pillar Page)
- What Is a Private Mortgage?
- Private Mortgage Interest Rates Explained
- How to Qualify for a Private Mortgage
- Private Mortgage Approval Process
- Private Mortgage Exit Strategies
Ready to Explore Your Options?
Every private mortgage is different, and so are the costs.
Before making a decision, speak with Mike Cara to understand your financing options, compare lenders, and receive a clear explanation of all fees and borrowing expenses.
Visit MikeCara.ca to learn how a private mortgage may help you achieve your financial goals while building a strategy to return to traditional financing when the time is right.
