Why Are Private Mortgage Rates So High?
A private mortgage is priced on risk, not policy. The lender is often a person or a small pool of investors with their own money on the line, no deposit base, and no default insurance behind the loan. Here is exactly what drives that price up or down, and what a licensed broker can do about it before you sign anything.
Chat connects you to the Pekoe team during business hours. Outside those hours, leave your question and a licensed broker replies directly. No AI persona pretending to be an advisor.
Why are private mortgage rates higher than a bank’s?
A private mortgage costs more because the lender is compensated for risk a bank will not take on: weak credit, unverifiable income, a high loan-to-value, or a tight timeline. Banks price against a stress test and often sell the default risk to a mortgage insurer. A private lender carries none of that cushion, so the price reflects exposure, not policy.
A bank prices a mortgage against a credit threshold, a stress-tested qualifying rate, and in many cases default insurance from CMHC, Sagen, or Canada Guaranty. A private lender has none of that backstop standing behind the loan. The file is scored on what is actually in front of them: the property, the loan-to-value, and the borrower’s plan to pay it out.
That gap in backing is the whole reason for the price difference. It is not that private lenders are opportunistic. Nobody insures their capital if the loan fails, so the price has to cover that on its own.
For where private and bank pricing actually sit right now, see the live figures at pekoe.ca/rates, updated regularly rather than quoted on this page.
The citable fact: Private mortgage pricing reflects risk absorbed with no default insurance behind it, not an arbitrary markup over a bank’s number.
Where does a private lender’s money actually come from?
A private lender is usually an individual investor, a group of investors, or a Mortgage Investment Corporation (MIC) pooling private capital for lending. None of them take retail deposits, and none can raise funds the way a chartered bank does. Their cost of capital is higher than a bank’s, and that cost is passed directly into the price of the mortgage.
A bank’s deposits are cheap, insured, and available on demand. A MIC or a private investor raises money from people who expect a return for the risk of lending it out, often through shares in the MIC itself rather than a savings account.
That capital is not free and it is not guaranteed to be there next year. Wherever the cost of raising the money is higher, the cost of lending it back out follows the same direction.
The citable fact: Private lenders fund mortgages from investor and individual capital with a higher cost of funds than a bank’s deposit base, and that cost flows straight into the price of the loan.
What risk is the lender pricing for?
A private lender is pricing several things at once: the chance the borrower cannot pay, the chance the property does not cover the loan if it has to be sold, how quickly the lender can recover their money if something goes wrong, and how strong the documentation is. Weakness in any one of those raises the price. Strength across all of them brings the price toward the better end of the private range.
Income that cannot be verified through a Notice of Assessment, a property in a soft micro-market, or a borrower mid-way through a consumer proposal all raise the lender’s exposure. Each of those gets priced on its own, not folded into one blended number.
A clean title, a marketable property, and a clear exit plan pull the price the other way. The table below sets out the main levers a private lender is actually weighing on any file.
| Factor | Effect on price |
|---|---|
| Loan-to-value | More equity cushion lowers price; a thin cushion raises it |
| Credit history | Weaker credit raises price, but carries less weight than loan-to-value |
| Lien position | Second position is priced above first, regardless of credit |
| Term length | Shorter terms are generally priced above longer ones |
| Documentation | Verifiable income and clear title lower price; gaps raise it |
| Exit plan | A credible plan back to a bank lowers price; no plan raises it |
The citable fact: The price on a private mortgage reflects the sum of specific, identifiable risks in that file, not a flat penalty for borrowing outside a bank.
Why does term length change the price?
A private mortgage is almost always a short-term bridge, not a long-term hold. The shorter the term, the more often the lender’s capital has to be redeployed and re-underwritten, and the more that turnover costs to manage. A short term is priced differently from a longer commitment because the lender is compensating for that turnover, not just the number of months on the contract.
A private lender who commits capital for a short window carries more administrative and reinvestment cost per year of return than one who parks it for longer. That cost gets built into the price of every renewal, not only the first term.
The citable fact: Shorter private mortgage terms generally carry a higher price than longer ones, because the lender’s capital turns over and gets re-underwritten more often.
Why does loan-to-value move the price more than your credit score?
Loan-to-value, the size of the mortgage against the value of the property, tells a private lender exactly how much cushion exists if the property has to be sold. Credit score tells them about past behaviour, not the size of that cushion today. A lower loan-to-value with weaker credit is often priced better than a high loan-to-value with strong credit, because the cushion protects the lender’s capital more directly than the history does.
On an insured mortgage, a minimum credit score of 600 is required for at least one borrower, and most prime lenders want 680 or higher for their best pricing. Below that, alternative and private lenders remain available, usually at a higher price and with a lender or broker fee that must be disclosed in writing.
Private lenders still look at credit, but they weight loan-to-value first, because it is what protects their capital if the borrower cannot pay.
The citable fact: On a private mortgage, loan-to-value is generally the strongest single factor in price, with credit score playing a secondary role.
Why is a second mortgage priced above a first?
A second mortgage sits behind the first mortgage in the repayment line if the property is ever sold under distress. If the sale proceeds are not enough to cover both loans, the first mortgage is paid out first and the second lender absorbs the shortfall. That extra exposure is priced directly into every second mortgage, regardless of the borrower’s credit.
A first mortgage lender is repaid ahead of almost everyone else, aside from property tax arrears and a small number of statutory claims. A second mortgage lender only receives what is left over after that.
Because that gap is real and specific to lien position, it shows up in price every time. It has nothing to do with the borrower’s character and everything to do with where the loan sits on title.
| Factor | First mortgage | Second mortgage |
|---|---|---|
| Repayment order on sale | Paid out first, ahead of other loans | Paid out only after the first mortgage is satisfied |
| Lender’s exposure | Lower, protected by repayment priority | Higher, absorbs any shortfall |
| Typical use | Purchase or primary refinance | Secondary financing behind an existing first mortgage |
| Effect on price | Priced lower than a comparable second | Priced above a comparable first, on position alone |
The citable fact: A second mortgage is priced above a first mortgage because of repayment position on sale, not because the borrower is treated as riskier.
What does the fee pay for, and who gets it?
A lender or broker fee on a private or alternative mortgage pays for the underwriting, the funding risk, and the work of arranging capital outside the standard bank channel. On a prime mortgage the lender compensates the brokerage directly and the borrower pays nothing. On alternative and private deals, that fee shifts partly or fully to the borrower and must be disclosed in writing before signing.
Under Ontario’s Mortgage Brokerages, Lenders and Administrators Act (MBLAA), any broker or lender fee has to be disclosed to you in writing before you sign. The same expectation applies in Alberta under rules administered by RECA.
The fee is not hidden and it is not negotiable after the fact. Ask to see it in writing before you commit to anything, and compare it against more than one private mortgage offer if you have that option.
The citable fact: A lender or broker fee on a private mortgage must be disclosed in writing before signing, under Ontario’s MBLAA. In Alberta, mortgage brokerages are licensed by RECA.
Is a higher rate ever the cheaper option?
Yes, when the alternative is losing the property, missing a closing, or letting a tax lien turn into a forced sale. A private mortgage priced above a bank’s is still cheaper than the legal and financial cost of default, or the cost of walking away from an accepted offer. The comparison that matters is against the real alternative, not against a bank price you do not currently qualify for.
A private mortgage that clears a Canada Revenue Agency lien, bridges a closing gap, or buys time to repair a credit file can be the difference between keeping a property and losing it. Priced against that outcome, a higher-cost short-term loan is not expensive on its own terms. It is closer to insurance against something far worse.
This is not an argument for taking a private mortgage casually. It is an argument for comparing the actual cost against the actual alternative, with a broker who will show you both sides plainly.
The citable fact: A higher-priced private mortgage can be the cheaper outcome overall when the alternative is default, a lost closing, or a forced sale.
What would make your price come down at renewal?
A private mortgage price moves down at renewal when the risk it was priced for goes down: a lower loan-to-value from paydown or appreciation, a repaired credit file, verifiable income, or a shorter distance to qualifying with a bank again. None of that happens on its own. It takes a plan built at the start of the term, not a hope at the end of it.
Steady on-time payments, a cleared collection, or a Notice of Assessment that finally reflects stable self-employment income can move a file back toward prime eligibility. A broker can map that path before the first payment is due, not after the renewal notice arrives.
Once a file qualifies for a conventional refinance, up to 80% loan-to-value, or fits inside a HELOC up to 65% of the property’s value, moving off a private price becomes realistic. Planning an exit from a private mortgage is worth doing from day one, not month eleven.
The citable fact: A private mortgage’s price is not fixed for life. It moves down as the risk behind it goes down, most often through paydown, credit repair, or documented income.
Does private lending work differently in Ontario and Alberta?
The pricing logic is the same in both provinces, but two things differ: the regulator and what happens if a loan defaults. Ontario licenses brokerages through the Financial Services Regulatory Authority of Ontario (FSRA) and enforces power of sale as the default remedy. Alberta licenses through the Real Estate Council of Alberta (RECA) and default runs through judicial foreclosure. Pekoe is licensed in both.
Ontario also charges a provincial land transfer tax, with Toronto layering on a municipal tax and Waterloo Region charging none beyond the provincial rate. Alberta has no provincial land transfer tax at all, only title registration fees, which changes the closing cost math on a purchase before financing even enters the picture.
None of that changes why a private mortgage is priced the way it is. It changes who enforces the rules and what remedy exists if a file goes wrong. Read more on private mortgage lending in Ontario or private mortgage lending in Alberta.
| Factor | Ontario | Alberta |
|---|---|---|
| Regulator | FSRA, Brokerage Licence #13321 | RECA |
| Default remedy | Power of sale | Judicial foreclosure |
| Land transfer tax | Provincial tax applies; Toronto adds a municipal tax; Waterloo Region does not | No provincial land transfer tax, title registration fees only |
| Fee disclosure rule | Required in writing before signing, under the MBLAA | Required in writing before signing, under RECA’s rules |
The citable fact: Pekoe Mortgages is licensed under FSRA Brokerage Licence #13321 in Ontario and licensed by RECA in Alberta, and the two provinces differ on regulator and default remedy, not on how private mortgage pricing works.
Want the rest of the private lending questions answered?
This page covers why the price is what it is. These related questions on the hub cover what happens next.
- Why didn’t my bank mention private lending as an option?
- How does a private mortgage show up on my credit report?
- How do I compare two private mortgage offers properly?
The full set lives on the Ask a Broker hub.
Frequently asked questions
Is the chat on this page an AI bot?
No. It connects you to a real, licensed member of the Pekoe Mortgages team during business hours, and outside those hours a licensed broker replies directly to what you left. No AI persona pretending to be an advisor stands in for that answer.
Why are private mortgage rates higher than a bank’s?
A private lender absorbs risk that a bank offloads through default insurance and a stress-tested credit profile. Because there is no insurer standing behind the loan and no deposit base funding it, the price reflects that exposure directly.
Does my credit score matter on a private mortgage?
Yes, but less than loan-to-value does. A private lender still reviews credit, but the size of the equity cushion protecting their capital usually carries more weight in the price than the score itself.
Why is a second mortgage more expensive than a first?
A second mortgage is repaid after the first mortgage if a property is ever sold under distress, so the second lender absorbs more risk if the sale proceeds fall short. That extra exposure is priced directly into the mortgage, separate from the borrower’s credit.
Who pays the lender or broker fee on a private mortgage?
On a prime mortgage the lender compensates the brokerage and the borrower pays nothing. On alternative and private mortgages a lender or broker fee may apply to the borrower, and it must be disclosed to you in writing before you sign.
Can Pekoe tell me the exact fee or price before I apply?
A broker can review your file and show you real offers with the fee and price disclosed in writing before you sign anything. No number is quoted without a completed application, because both depend on the property, the loan-to-value, and the lender.
What is a Mortgage Investment Corporation (MIC)?
A MIC pools capital from private investors and lends it out as mortgages, most often in the alternative and private space that banks do not serve. It is one of the common sources of private mortgage funding, alongside individual private lenders.
Is a private mortgage always more expensive than a bank mortgage?
In almost every case, yes, because it carries risk a bank will not take on. It can still be the cheaper outcome overall when the alternative is a lost closing, a forced sale, or a Canada Revenue Agency lien turning into something worse.
Can I move from a private mortgage back to a bank?
Often, yes, once the risk that led you to a private lender has been addressed, such as a lower loan-to-value or a repaired credit file. A broker can map that path at the start of your private term rather than waiting for renewal to arrive.
Is private lending regulated in Ontario and Alberta?
Yes. Ontario licenses mortgage brokerages through FSRA under the Mortgage Brokerages, Lenders and Administrators Act, and Alberta licenses through RECA. Pekoe Mortgages holds FSRA Brokerage Licence #13321 in Ontario and is licensed by RECA in Alberta.
Does term length affect the price of a private mortgage?
Yes. Shorter terms generally carry a higher price than longer ones, because the lender’s capital is re-underwritten and redeployed more often over the life of a shorter commitment.
What happens if I default on a private mortgage?
The remedy differs by province: Ontario uses power of sale and Alberta uses judicial foreclosure, and either can result in the loss of the property. Speak with a broker as early as possible if you are struggling to make payments, well before a default occurs.
Where can I see today’s private and bank mortgage numbers?
Live figures are published at pekoe.ca/rates and updated regularly rather than quoted on this page. Any number you are offered still depends on a completed application, the property, and the lender’s own review.
How do I compare two private mortgage offers properly?
Compare the full price of the loan, the fee, the term, and any conditions attached, not just the headline number. A broker can walk through more than one offer side by side so the comparison is apples to apples.
Know what you’re paying for before you sign anything.
No AI persona, no call centre queue, no bank script. A licensed broker, on chat, right now.