Understanding Private Mortgage Lender Fees

July 5, 2022

Key points:

  • Along with higher interest rates, private mortgage lenders also charge lender fees.
  • Fees depend on the level of risk of the mortgage, but are often around 2 per cent.
  • You should also take into account broker fees, legal fees, and appraisal fees.

Private mortgage lender fees

In this video, we chat about all the fees you can expect to encounter with private mortgage lending. Apart from interest rates, borrowers need to pay extra fees to the lender, broker, and lawyer, along with fees for an appraisal.

Join me as we discuss how these fees work, and how to keep them as low as possible.

You can also review the complete private mortgage guide for more detailed information!

Don’t feel like watching? Find the full transcript below!

Chris: [00:00:00] Fees, fees, fees. This video is all about private mortgage lender fees, how they’re determined, what you can expect if you’re applying and how to keep those costs low. Join me as I cover all these details. Let’s go.

Why do private lenders charge fees?

Chris: [00:00:24] Private or home equity mortgages carry high interest costs. It’s inevitable. And it’s the return that investors demand for taking the risk on your mortgage application. But in addition to the higher interest rates, you also have to consider fees. And it’s very common for the actual lender, the administrator of the money, to charge what are known as lender fees. So why is it that a lender will charge a fee on top of the interest? Well, generally, the way that private mortgage lenders are structured is that they have investors or groups of investors. And to get the capital, to get that money, they have to pay an interest rate to them. And that’s what your interest does. It’s paying the the investors in those funds. But those funds are quite expensive. There’s a lot of administration, there’s a lot of staff. And so the private lender fees are used to cover the administrative costs of running those private lenders.

Chris: [00:01:30] So what can you expect as a private mortgage lender fee? Well, there is no steadfast rule. The market currently is charging about 2 per cent in lender fees. So that means that if you’re borrowing 100,000 dollars as a private mortgage, the 2 per cent lender fee is 2000 dollars. But depending on the degree of difficulty, the level of risk, lenders may take advantage in charge, a higher fee. And also, if your risk is lower, you may find lenders that will charge a 1 per cent fee or less. To find lenders that charge no fee, that’s hard to find. In general, what they’ll do is they’ll say, okay, no lender fee, but we’re going to just put it into the mortgage interest rate that we charge you. So one way or another, you always end up paying for lender fees, whether you like it or not.

Extra fees for private mortgage borrowing

Chris: [00:02:23] In addition to lender fees, there are a few other costs that you have to consider when applying for a private mortgage, and they include the broker fee if you’re using a broker, your legal fees to set up that mortgage, and in almost all cases, there is going to be an appraisal required from an independent third party appraiser. Broker fees are generally about 1 per cent of the mortgage amount. So if you add a 2 per cent lender fee plus 1 per cent broker fee, you’re looking at about 3 per cent in fees. Legal fees, when we’re dealing with private mortgages, there is a requirement that two lawyers are involved. One to provide independent legal representation to you as a borrower, and another lawyer to represent the lender and the requirements of the lender. So that’s two legal fees that need to be paid. And appraisals, well they can vary widely from 300 dollars all the way to 1000, depending on the complexity of the report. If it’s rural, if it’s a condo, all these things determine the pricing of appraisal fees.

Keeping your costs low

Chris: [00:03:32] So now the question is how do you keep these costs low? And the answer is that it may seem like an obvious one, that is to shop it around. How do you shop it around? Call, talk to brokers like myself. We have access to various lenders and our job is to make sure that we are connecting you with the most efficient and best suited mortgage. You’d be surprised how much variation there can be between lenders, and it’s all in the presentation of your application to that lender, and that is where a broker is worth their weight in gold to ensure that you are getting the best deal possible from your private mortgage lender.

Chris: [00:04:12] My name is Chris Molder. I am a Toronto based mortgage broker who specializes in private mortgage financing and second mortgages. If you have any questions or concerns or you are considering applying for a private mortgage, feel free to reach out with confidence. My contact information will follow. Bye for now.

Need more help or information?

I encourage you to check out the complete private mortgage guide on my website, where I cover all aspects of this type of mortgage financing. 

I can help you determine if private mortgage financing is right for you. I’m just a phone call or email away. You can book a call directly into my calendar below, or get in touch with me here.