The short answer
Where the cost comes from
- The rate, clearly higher than a bank or institutional lender’s.
- The lender’s fees, often a percentage of the loan, paid upfront or deducted from the amount advanced.
- Brokerage fees, which can apply to private financing and which you know in writing before the file starts. See What it costs.
- Notary and registration costs for the security.
- Extension fees if the return to standard financing takes longer than planned.
A fictional example over 12 months
The $24,000 difference is the price of speed and access. It is justified only if it solves a more expensive problem, such as a missed sale or an avoided foreclosure.
The exit plan
An exit plan names:
- the date the loan must end;
- the expected corrections (debt settled, income documented, work finished, sale closed);
- the proof that will show each is done;
- the lender you return to, checked before signing.
See the guide Using a private mortgage with an exit plan.
Pricing the delay
If the return to standard financing or the sale does not happen on the planned date, ask before signing: the extension fees, the new monthly cost, and the fallback. A plan that cannot survive a three-month delay is a fragile plan.
Frequently asked questions
How long does a private mortgage last?
It is a short-term loan. The length is set in the contract, with or without an extension option.
Are private lenders regulated like banks?
They are not subject to the same regulation. Read the whole contract and have a notary or lawyer review it before you sign.
Can a private mortgage be avoided?
Sometimes. An alternative lender or a few months of preparation may be enough. I tell you first: it is almost always cheaper.