"The Real Cost of a Private Mortgage: What You Need to Know Before You Sign"

Private mortgages can be a lifeline when the banks say no—but they come at a price. Whether you're self-employed, have bruised credit, or need fast financing for a unique property, private lending offers flexibility where traditional lenders won’t. But don’t let quick approval cloud your judgment. Before you sign, it’s crucial to understand the real costs, risks, and when a private mortgage actually makes sense.

1. What Is a Private Mortgage?

A private mortgage is a home loan funded by an individual or organization outside of traditional banks and credit unions. These lenders include individual investors, Mortgage Investment Corporations (MICs), and private lending groups. Private mortgages are typically short-term solutions (6–24 months) and are ideal for borrowers who need fast approvals, have non-traditional income, or face credit challenges.

Instead of focusing on your income or credit score, private lenders primarily look at the equity in the property and the overall risk of the deal. They're often used for purchases, refinances, debt consolidation, or to cover short-term financial gaps until you qualify for a traditional mortgage.

2. When Do Private Mortgages Make Sense?

Here are real-world scenarios where private mortgages might be your best option:

• Self-Employed Borrower: A Toronto client couldn’t show enough declared income for a traditional lender. A 12-month private mortgage bought them time to file taxes and qualify conventionally later.

• Bruised Credit: A Mississauga couple recovering from a consumer proposal secured a private loan to keep their home while rebuilding credit.

• Fast Closing: An investor in Hamilton needed to close in 5 days. A private lender stepped in where a bank couldn’t meet the timeline.

3. What’s the Real Cost?

Private loans carry higher interest (typically 8%–14%) plus fees (lender, broker, legal, appraisal). Here's a sample breakdown on a $500,000 private mortgage:

• Interest: 12% (interest-only monthly = $5,000)

• Lender fee: 2% ($10,000)

• Broker fee: 1%–2%

• Legal & admin: ~$2,000+

That’s $15K+ upfront and $60K annually in interest. It’s not cheap—but it can be strategic if it leads to a better solution later.

4. What to Watch For

• Exit Strategy: Know how you’ll pay it off—refinance, sell, or flip.

• Lender Terms: Read the fine print. Are there renewal fees or prepayment penalties?

• LTV Limits: Most private lenders won’t lend over 80% loan-to-value.

• Fraud Risks: Use a licensed mortgage broker to avoid predatory lenders.

5. When It’s a Red Flag

If you’re being steered toward private lending without exhausting traditional options, or if the lender can’t clearly explain fees—run. A good broker will always walk you through your best choices, not just the fastest ones.

Conclusion:

Private mortgages can be a smart short-term solution—but only when used correctly. If you're unsure whether it's the right move, get a second opinion. At Swivel Mortgage Group, we’ll explore every option to find the strategy that fits your goals and protects your financial future.

Need advice on private mortgage options? 

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