Financial Consumer Agency Of Canada
Mortgage Interest
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Interest rates on private mortgages can vary significantly depending on a number of influences, in much the same way as traditional institutional lending rates do. The biggest difference between private and traditional mortgage rates, are the factors that influence them. The most important influence on a private mortgage rate is the risk associated with the deal. Low loan-to-value ratios and first mortgage security are likely to allow the lender to offer a better rate compared to a higher ratio or a mortgage in second or third position.

Privately funded first mortgages can carry rates anywhere from 7% to 12%, second mortgages from 12% to 15%. While mortgage rates offered by traditional lenders are affected by the bond market and the central bank’s overnight rate, private mortgage rates tend to stay within the aforementioned ranges. As private lenders typically lend regionally, and are very selective about which properties they are willing to lend on, competition is a factor that can affect the interest rate as well. A lack of available lenders can cause the rate to increase, while competition between multiple lenders can be beneficial to the borrower, in many cases bringing interest rates to similar levels that would be offered at a bank.

It is important to note that in many cases, private lenders may charge the borrower a lender fee. These fees tend to be anywhere from 0.5% to 3.0% of the purchase price. As most private mortgages are one year terms, the lender may charge an additional fee if the borrower requests a renewal.

Those seeking financing using a private lender would be well advised to work with a private Mortgage Broker who has access to the entire local market.