When the banks say "no," a private mortgage can be a powerful tool to unlock a real estate opportunity or solve an urgent financial problem. They offer a level of speed and flexibility that traditional lenders simply can't match. But as you explore this option, you’re likely asking the most important question: "What is this actually going to cost me?"

Understanding the cost of a private mortgage is crucial. Unlike a standard bank loan, the cost isn't just the interest rate. There is a series of professional fees required to arrange and close the loan. A lack of transparency around these fees can lead to confusion, mistrust, and unwelcome surprises on closing day.

This guide will provide a complete, transparent breakdown of every potential fee involved in a private mortgage transaction in Canada. We will explain what each fee is for, who gets paid, what the typical costs are, and how it all comes together in a real-world scenario. Our goal is to empower you with a clear understanding so you can make a fully informed financial decision.

The Primary Cost: The Interest Rate

The most visible cost of any loan is the interest rate, and with private mortgages, it's noticeably higher than the rates advertised by big banks.

Why Private Mortgage Rates are Higher

The answer comes down to one word: risk. Private lenders are stepping in to approve a loan that 'A' lenders, with their very strict and rigid guidelines, have declined. This could be due to a borrower's bruised credit, self-employed income that's hard to prove, or the property itself being unique. To compensate for taking on this higher perceived risk, private investors require a higher return on their investment, which is reflected in a higher interest rate.

Typical Interest Rate Ranges (2025)

Private mortgage rates are not standardized and can vary based on the specifics of the deal, the property's location (e.g., urban vs. rural), and whether it's a first or second mortgage. As of late 2025, you can generally expect rates in these ranges:

Private First Mortgages: 5.99% to 9.99%

Private Second Mortgages: 6.99% to 13.99%

The vast majority of private mortgages are second mortgages, which have higher rates because they are in a subordinate position; if the borrower defaults, the primary mortgage lender gets paid back first from the sale of the property.

Interest-Only vs. Amortized Payments

To keep the monthly payments as low as possible for the borrower, most private mortgages are structured with interest-only payments. This means your monthly payment only covers the interest accruing on the loan, and it does not pay down the principal balance. This is a key feature that makes these loans affordable in the short-term, reinforcing their nature as a temporary "bridge" solution, not a long-term one.

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Closing Costs: Fees Paid on Closing

Beyond the interest rate, there are a series of one-time professional fees. It's critical to know that these fees are almost always paid on closing day, deducted directly from the mortgage proceeds. You should be very wary of any lender or broker who asks for large, non-refundable fees upfront.

The Lender Fee (The Cost of Capital)

What it is: This is a one-time fee paid directly to the private lender or Mortgage Investment Corporation (MIC) for originating the loan. It covers their administrative costs, their due diligence in assessing the deal, and a portion of their profit.

How it's calculated: The lender fee is a percentage of the total loan amount. In Canada, this typically ranges from 1% to 3%.

Example: On a $100,000 private second mortgage, a 2% lender fee would be $2,000.

The Broker Fee (The Cost of Expertise)

What it is: This is a one-time fee paid to the mortgage brokerage for their professional services in arranging the loan.

What it covers: A significant amount of work goes into a private mortgage placement. This fee covers:

A thorough analysis of your financial situation and property.

Identifying the most suitable lender from a private network of dozens or even hundreds of options.

Negotiating the best possible terms (rate, fees, and conditions) on your behalf.

Professionally packaging your application and all supporting documents.

Managing the entire transaction, coordinating with the lender and lawyers, from application to successful closing.

How it's calculated: The broker fee is also a percentage of the loan amount, typically ranging from 1% to 4%, depending on the complexity, size, and urgency of the deal. In most provinces, including Ontario, the total of the lender and broker fees is often capped by regulation to protect consumers.

The Legal Fees (The Cost of Protection)

What it is: These are the fees paid to the real estate lawyer(s) who facilitate the legal side of the transaction, register the mortgage on title, and handle the flow of funds.

A Crucial Difference: In a standard bank mortgage, you typically only pay for your own lawyer. In a private mortgage transaction, the borrower is almost always required to pay the legal fees for both their own lawyer AND the lender's lawyer. This is a standard practice in the industry. While costs vary, a borrower should budget approximately $2,000 to $3,000 in total legal fees for a private second mortgage.

The Appraisal Fee (The Cost of Valuation)

What it is: This is a fee paid to a licensed, third-party property appraiser. The appraiser visits the property and prepares a detailed report on its current fair market value.

Why it's essential: This is a non-negotiable requirement for every private lender. Because private lending is "equity-based," the lender's entire decision rests on the accuracy of the property's valuation. This is the one fee that is often paid upfront by the borrower, as the appraisal must be completed before the lender can issue a final mortgage commitment. A typical appraisal fee ranges from $400 to $700.

How It All Comes Together: A Real-World Example

Let's see how these fees impact a real-world scenario. A borrower needs a $100,000 private second mortgage for a one-year term to fund a business opportunity.

The Breakdown of Costs

Here’s a clear, itemized list showing how the funds would likely be disbursed on closing day by the lawyer:

Total Loan Amount from Lender: +$100,000

Less Fees:

Lender Fee (at 2%): -$2,000

Broker Fee (at 3%): -$3,000

Borrower's Estimated Legal Fees & Disbursements: -$1,500

Lender's Estimated Legal Fees: -$1,500

Appraisal Fee (often paid upfront, but listed here): -$500

Total Estimated Fees Deducted at Closing: ~$8,500

The Net Advance to the Borrower

The final calculation is the most important one for the borrower's planning:

Loan Amount ($100,000) - Total Fees ($8,500) = Net Funds to Borrower ($91,500)

This is a critical point. If the borrower needed the full $100,000 in cash, they would need to arrange for a larger loan to account for the fees. A good broker will always walk you through this net proceeds calculation to ensure the loan is sized correctly to meet your goal.

A Transparent Private Mortgage Transaction

While the interest rates and fees associated with a private mortgage are undeniably higher than a traditional bank loan, they should never be a mystery. The process should be fully transparent from start to finish.

A professional, FSRA-licensed mortgage broker has a legal and ethical duty to provide you with a full, written disclosure of all costs and terms before you sign any commitment. This document, often called a Disclosure Statement, breaks down every fee so you can see exactly where the money is going. There should be no hidden costs and no last-minute surprises. This transparency is the hallmark of a reputable broker and is your best protection in the private lending market.

If you're considering a private mortgage to solve a problem or seize an opportunity, the first step is to understand the true cost. Contact our brokerage today for a no-obligation consultation and a fully transparent breakdown of all the fees involved.

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