You've been quoted a private mortgage at 10% interest with a 2% lender fee. The broker says it's competitive. Your friend paid 8.5% last year. Another lender advertises "rates as low as 7.99%." How do you know if you're getting fair pricing—and more importantly, what will this mortgage actually cost you over 12-24 months?
Private mortgage costs in Ontario include more than just the interest rate. Between lender fees, legal costs, appraisal charges, and potential broker fees, your total first-year cost can be 30-40% higher than the advertised rate suggests. In this guide, we'll break down every cost component, show you real examples with actual numbers, and help you calculate your total cost of borrowing so you can make informed decisions.
Understanding Private Mortgage Interest Rates in Ontario
Private mortgage rates in Ontario typically range from 7.99% to 14.99%, significantly higher than traditional mortgages (currently 5-7%). This premium reflects alternative qualification criteria, faster approval timelines, and the bridge financing nature of private mortgages.
What Determines Your Interest Rate?
Your specific rate within the 7.99-14.99% range depends on four primary factors. Understanding these helps you position your application for the best possible pricing.
1. Loan-to-Value Ratio (LTV)
The percentage of property value you're borrowing. Lower LTV = less lender risk = better rates.
2. Credit Score
While not the primary approval factor, credit influences rate pricing significantly.
3. Property Type & Location
Properties that are easier to sell command better rates due to lower lender risk.
4. Exit Strategy Strength
Lenders assess your ability to refinance or repay when the term ends.
Example Rate Calculation
Scenario: Self-employed borrower, $400,000 property, $300,000 mortgage (75% LTV), 650 credit score, Toronto detached home, documented income for refinance
Complete Fee Breakdown: What You'll Actually Pay
Interest rates tell only part of the story. Private mortgages include several fees that significantly impact your total cost, especially in the first year.
Lender Fee (1-3% of Loan Amount)
The lender fee—sometimes called an arrangement fee, commitment fee, or broker fee—is a one-time charge calculated as a percentage of your loan amount. This is the lender's upfront compensation for funding your mortgage.
Lender Fee Examples by Loan Size
$200,000 mortgage @ 2% fee
Typical first mortgage scenario
$4,000
$300,000 mortgage @ 2% fee
Most common loan size
$6,000
$500,000 mortgage @ 2% fee
Larger property value
$10,000
$300,000 mortgage @ 3% fee
Higher-risk scenario (low credit, high LTV)
$9,000
Note: Lender fees are typically deducted from your advance at closing, reducing the net funds you receive.
Appraisal Fee ($400-$1,000+)
A professional property appraisal determines current market value, which establishes your maximum loan amount based on LTV limits. Most private lenders require updated appraisals even if you have a recent bank appraisal.
- Standard residential appraisal: $400-$600
- Rural or unique property: $600-$900
- Multi-unit building (2-4 units): $750-$1,000+
- Rush appraisal (7 days or less): Additional $150-$300
Legal Fees ($800-$1,500)
Your lawyer reviews the mortgage commitment, prepares closing documents, registers the mortgage on title, and ensures proper fund disbursement. Legal fees cover their time plus disbursements (title search, registration fees, etc.).
Legal Fees Include:
- • Document review and preparation
- • Title search and insurance
- • Mortgage registration
- • Closing coordination
Typical Cost Range:
- • Simple transaction: $800-$1,000
- • Complex deal (multiple liens): $1,000-$1,200
- • Refinance with payout: $1,200-$1,500
Broker Fee (If Applicable - 1-2%)
If you work with a mortgage broker, they may charge a separate broker fee (1-2% of loan amount) in addition to the lender fee. Some brokers are compensated directly by lenders and don't charge borrowers separately—always clarify upfront.
Important: Understand Who Pays What
Always ask: "What is the lender fee, and is there a separate broker fee?" Some scenarios show:
Total Annual Cost Examples (Real Numbers)
Let's calculate the true cost of private mortgages at different amounts and rates, including all fees for Year 1. These examples show what you'll actually pay, not just advertised rates.
Example 1: $200,000 Private Mortgage @ 10%
Annual Interest (10%):
$20,000
Lender Fee (2%):
$4,000
Appraisal:
$400
Legal:
$1,000
Effective first-year APR: 12.7% (including all fees)
Example 2: $300,000 Private Mortgage @ 10%
Annual Interest (10%):
$30,000
Lender Fee (2%):
$6,000
Appraisal:
$400
Legal:
$1,200
Effective first-year APR: 12.5% (including all fees)
Comparison: $300,000 Traditional Mortgage @ 6%
Annual Interest (6%):
$18,000
Lender Fees:
$0
Appraisal:
$0 (bank covers)
Legal:
$800
Cost Difference (Private vs Traditional):
$18,800 additional cost in Year 1
This $18,800 premium is the cost of bridge financing while building traditional documentation. This is why exit strategy planning and timeline are critical.
Monthly Payment Breakdown
Understanding your monthly payment obligations helps with cash flow planning. Private mortgages typically offer interest-only payments during the term, with principal due at maturity.
Monthly Payment Examples (Interest-Only)
$200,000 @ 10%
Monthly interest
$1,667/month
$300,000 @ 10%
Monthly interest
$2,500/month
$500,000 @ 10%
Monthly interest
$4,167/month
Note: Interest-only payments mean the full principal ($200K, $300K, $500K) is due at maturity (refinance, sale, or renewal).
Hidden Costs to Watch For
Beyond standard fees, several potential costs can surprise borrowers if not discussed upfront. Always ask about these during the application process:
Prepayment Penalties
What to ask: "Is there a penalty if I refinance or pay off early?" Many private mortgages offer no prepayment penalties, giving you flexibility to exit when ready. However, some charge 1-3 months interest if you prepay within the first 6-12 months.
Renewal or Extension Fees
What to ask: "If I need to renew at maturity, is there a fee?" Some lenders charge 0.5-1% renewal fee if you extend the term. Factor this into your exit strategy planning if refinancing might be delayed.
Discharge Fees
What to ask: "What does it cost to discharge the mortgage when I refinance?" Typical discharge fees are $200-$500 for administration and legal processing when you pay off the mortgage.
Property Tax or Insurance Lapse Charges
What to ask: "Are there penalties if property tax or insurance lapses?" Some lenders charge administrative fees ($100-$300) if you let property insurance lapse or fall behind on property taxes, as both create lien priority issues.
When Higher Costs Make Sense
Despite significantly higher costs than traditional mortgages, private mortgages provide value in specific scenarios where access to capital outweighs cost considerations:
- Time-sensitive opportunities: Closing a property purchase in 30 days when banks need 90 days
- Credit repair period: Financing while rebuilding credit after bankruptcy, consumer proposal, or divorce
- Income documentation gap: New self-employment (less than 2 years) preventing traditional qualification
- Portfolio expansion: Financing 6th+ investment property when banks hit property caps
- Property value appreciation: Securing property at current prices before anticipated value increase exceeds borrowing costs
In these scenarios, the $18,000-$20,000 annual cost premium (on a $300,000 mortgage) may be justified by opportunity value—but only with a clear exit strategy to traditional financing within 12-24 months.
Frequently Asked Questions
Key Takeaways
- Rates range from 7.99-14.99% based on four factors: LTV/down payment (biggest impact), credit score, property type/location, and exit strategy strength. Most borrowers with 25-35% down and reasonable credit fall in the 9-12% range.
- Fees add 2.5-5% to total first-year cost: Lender fee (1-3%), appraisal ($300-$500), legal ($800-$1,500), and potentially broker fee (1-2%) combine to significantly increase Year 1 expenses beyond interest alone.
- Total annual cost is roughly double traditional mortgages: A $300,000 private mortgage costs approximately $37,600 in Year 1 vs. $18,800 for traditional—an $18,800 premium that emphasizes the importance of timeline and exit planning.
- Calculate total cost, not just rate: Use our APR calculator to see all fees included. A 9% loan with 3% lender fee may cost more than an 11% loan with 1% lender fee depending on your timeline.
