Are Private Mortgages Safe?
March 1, 2025 | Posted by: Alex Vinarski
Private mortgages are generally safe when structured with a clear exit strategy and the means to make payments. However, there are a few things to watch out for to ensure you’re getting a fair deal. Here’s what you need to know:
1. Rates and Fees
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Private mortgage rates and fees vary depending on loan to value, marketability of the property and other facors, but in general:
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1st Mortgage: Fees should be around 2%, and rates form 6.5% to 11%
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2nd Mortgage: Fees should be around 4%, and rates from 10% to 15%
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Be cautious of brokers or lenders charging excessively high rates or fees. Always compare offers and ask questions.
2. Renewal Fees
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Some private lenders charge high renewal fees or increase rate. Before signing, ask about:
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Renewal terms.
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Any additional costs at renewal.
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3. Lender Reliability
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If your lender is an individual, they might need funds for other projects and could choose not to renew your mortgage. While this is rare (I’ve only seen it once in 15 years), it’s a risk to be aware of.
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Mortgage Investment Corporations (MICs) are more reliable. Unless borrower missing payments, or property value drops significantly they will always renew. Many MIC's charge very small renewal fees.
Final Thoughts
In reality, private mortgages have helped many people secure financing when traditional lenders couldn’t.
Private mortgages are a powerful tool when used wisely. By understanding the risks and asking the right questions, you can ensure a safe and successful experience. To learn more about how private mortgages work, visit my page https://www.ipotekacanada.com/index.php/private-mortgages.
