Private mortgages are mortgages lent out by alternative lenders, such as individuals or mortgage investment corporations, rather than traditional lenders such as banks. Private mortgage lenders usually offer only short-term mortgages, commonly around 1 year, with some being interest-only. Private mortgages are an alternative for those with bad credit or low income that have been declined by traditional lenders, but can also be used by those needing more flexible financing options, such as short-term investments or debt consolidation. Below are some private mortgage rates for private lenders across Canada.
*Rates are for informational purposes only and reflect the lowest rates available. Rates may change at any time and may be applicable only to certain borrowers. Terms and conditions apply.
First mortgage rates are typically lower than second mortgage rates. A first mortgage, also known as a first lien or primary lien, would be the first debt to be paid back should the borrower default on their debt. Being first in line to be repaid means that the lender of a first mortgage has a higher chance of recovering the money that they lent out should there be a foreclosure.
The lender of a second mortgage will only be repaid once the first mortgage lender recovers the entire amount that they are owed. Since a second mortgage lender will only be getting the leftovers of any recovered amount, a second mortgage is riskier for a lender. To make up for the increased risk, second mortgage rates are higher than first mortgage rates.
A higher LTV ratio can lead to more expensive private mortgage rates and potentially limit your options. Loan-to-value (LTV) is a ratio between the total mortgage amount compared to the value of your home. A mortgage is a secured loan, which means that you are putting your home up as collateral in order for your mortgage lender to lend you money. If you default on your mortgage, your home will be sold in order to repay your debt.
A high LTV means that you have a relatively large amount of debt compared to the value of your home, while a small LTV means that you have a relatively small amount of debt. The higher your LTV, the riskier it is for a mortgage lender to allow you to borrow money. A high LTV will mean higher private mortgage rates, while a low LTV might mean lower private mortgage rates.
A LTV ratio above 100% means that you owe more on your mortgage than your home is worth. Called an underwater mortgage, this means that if you have a second mortgage, then that second mortgage would not be secured by the value of your home.
Since private mortgages are riskier than conventional mortgages, private lenders are not as willing to lend to borrowers with a high LTV ratio. If your LTV ratio is too high, your lender might not be able to recover the full amount that they lent out. Having a LTV ratio above 75% will limit your private mortgage options.
Private mortgage lenders usually charge a lender fee, which is commonly around 2% of the private mortgage amount. The lender fee compensates the private lender for things like administrating your mortgage and finding private investors and individuals that are willing to finance your mortgage.
If your mortgage is a particularly risky one, such as if you have a high LTV ratio, you might be charged a higher lender fee. A higher lender fee might also be required due to the higher difficulty of finding investors to fund your mortgage.
Below is an example of rates and lender fees charged by a private mortgage lender in Ontario for a one-year term. The second mortgage rate is higher than the first mortgage rate, and the mortgage rate increases as the LTV ratio increases. The lender fee also increases the higher the risk of the mortgage.
|First Mortgage||Up to 60% LTV||Up to 70% LTV||Up to 80% LTV|
|Second Mortgage||Up to 65% LTV||Up to 75% LTV||Up to 90% LTV|
Yes, you still have to pay broker fees in addition to a lender fee.
Private mortgage lenders cannot advertise directly to the public in most provinces, and so they must work through a licensed mortgage broker in order to source borrowers. In order to compensate mortgage brokers for their work in matching you with a private lender, brokers usually charge a broker fee.
For a private mortgage, the broker fee typically matches the lender fee. This means that if the private lender fee is 2%, you can expect the broker fee to be around 2% as well.
The annual percentage rate, or APR, includes all costs of your mortgage including interest and fees. Some fees include appraisal fees, home inspection fees, legal costs, and title insurance.
The private mortgage rate is only the interest that is being charged. Since there are other costs to your mortgage, such as the lender fee and broker fee as well as closing costs, the mortgage rate alone does not truly reflect the cost of your mortgage.
A private lender might quote a private mortgage rate of 5% for a one-year term. The actual cost of this private mortgage will be higher, which is reflected through the APR being higher than the mortgage rate. If the private lender charges a lender fee of 2%, and a mortgage broker charges a broker fee of 2%, then the APR of the private mortgage would be 12.39% for a one-year term.
Since the lender fee and broker fee is a fixed percentage, the relative cost of these fees will be smaller the longer the mortgage term. If the mortgage term is two years rather than one year, the APR will be 8.87%. A mortgage term of three years will have an APR of 7.64%.