The interest rate offered and charged for the use of private mortgage funds will first of all depend on the risk of the deal. If first mortgage security is being offered to the lender and the loan to value is relatively low, then better rates are going to be offered and available compared to mortgage security in second or third position with high corresponding loan to value ratios.
As a very general rule, private first mortgages will range from 7% to 10% for most first mortgages, and from 9% to 14% on most second mortgages.
While bank or institutional lending rates move with the bond market or the central bank’s over night rate, private mortgage rates stay fairly stable with the above ranges holding true even with a one or two percent change in the commercial lending rates.
What is different about private mortgage interest rates compared to those from a bank is that the level of competition can vary more dramatically for one area to another for any given property.
Private lenders tend to operate very regionally and some will have a very narrow focus on the types of properties they will be prepared to lend on.
As a result, there can be times when there can be a limited interest in a deal due to a lack of available lenders, which can cause lenders who are active in the market to charge more to the higher level of the rate range.
Conversely, if there is a lot of competition among private lenders within a certain area for certain types of properties and loan requests, the private mortgage rates can be very competitive and in some cases come close to rivaling what the local banks may be offering on a similar deal.
While not always the case, most private lenders will charge a lender fee on closing of anywhere from 0.5% to 3.0%, depending on the lender and the deal. These lender fees do increase the effective cost of borrowing and need to be factored in with the stated interest rate to ascertain a true cost of capital.
Most private lenders will only provide commitments for one year terms, and if a borrower requests a renewal for an additional year, a renewal fee may be charged as well by the private lender.
Also remember that because private lenders are mostly individual investors who are in and out of the market based on available cash, there can be significant differences in the private mortgage rates being offered on the same property from one lender to the next.
In order to secure a solid private mortgage rate at any given point in time, you’d be well advised to be working with a private mortgage broker who has broad access to the local market where the property offered as security is located.
If you’re in looking for a private mortgage rate quote in Southwestern Ontario, I suggest that you give me a call so I can quickly assess your requirements and provide you with some options for your immediate consideration.