Private mortgages cost more than institutional ones — that is understood. But the total cost goes beyond the interest rate. When you add lender fees, broker fees, legal costs on both sides, and a potential discharge fee, a borrower can easily pay 3–5% of the mortgage amount in transaction costs on a short-term private deal. As an agent, your job is to model these costs clearly before the client commits.
The lender fee
Private lenders charge a fee for providing the loan, separate from the interest rate. This is called the lender fee, origination fee, or arrangement fee. For most private lenders in Canada — individual investors, Mortgage Investment Corporations (MICs), and small syndicates — the lender fee runs 1% to 3% of the mortgage amount. Riskier deals command higher fees. A clean 65% LTV deal on a prime urban property from a known borrower might attract a 1% fee. A 75% LTV deal in a secondary market with a credit-challenged borrower might attract 2.5–3%.
The lender fee is typically deducted from the advance — meaning the borrower does not receive the full mortgage amount. On a $400,000 private mortgage with a 2% lender fee, the advance to the borrower is $392,000. The borrower owes $400,000 but received $392,000. That $8,000 fee is effectively pre-paid interest, and it increases the true cost of borrowing.
The broker or agent fee
Unlike institutional lending where lenders pay the brokerage directly (via BPS), private lenders often do not pay commissions to brokers at all, or they pay reduced BPS. As a result, agents working private deals typically charge a separate broker/agent fee to the borrower.
This fee is negotiated and disclosed. Common ranges are 1% to 2% of the mortgage amount. Some agents charge a flat fee. For a $400,000 mortgage, a 1.5% agent fee = $6,000. This can also be deducted from the advance or collected at closing through the lawyer.
Important: In Ontario, under the Mortgage Brokerages, Lenders and Administrators Act (MBLAA), any fee charged to a borrower must be disclosed in writing. The Cost of Borrowing disclosure must show all fees, the interest rate, and the effective annual rate. Charging undisclosed fees is a regulatory offence. Ensure every private deal has a signed disclosure document before you proceed.
Legal fees — lender's and borrower's
Private mortgage transactions require a lawyer on both sides of the transaction. The lender's lawyer prepares and registers the mortgage security and charges for this service. The borrower's lawyer handles title, fund disbursement, and client instructions. Both legal bills are typically paid by the borrower.
Lender legal fees for a straightforward private first mortgage can run $1,200–$2,500. For a second mortgage or a more complex property, expect $1,800–$3,000+. The borrower's own legal fees add another $1,000–$2,000. On a $400,000 deal, combined legal costs might be $3,000–$5,000.
Some private lenders have a preferred legal firm and will direct the transaction through them. Confirm this early — the borrower needs to understand they are paying the lender's legal costs and that those costs come off the advance.
Discharge fee
When the private mortgage is paid out — either at maturity or earlier — the lender may charge a discharge fee to remove their security from title. This fee ranges from a few hundred dollars to $1,500 depending on the lender and the complexity of the discharge. The lawyer preparing the discharge also charges a disbursement fee.
On a 12-month private mortgage, a borrower should budget for discharge costs as part of the total exit plan. If the intention is to refinance into an institutional mortgage at term, those legal and discharge costs come on top of any new appraisal fee and potential penalty on the private deal.
Total cost illustration
Example: $400,000 private first mortgage, 12-month term, 10.99% interest rate
Lender fee (2%): $8,000
Agent fee (1.5%): $6,000
Lender legal: $2,000
Borrower legal: $1,500
Discharge fee (estimate): $800
Total transaction costs: $18,300
Net advance to borrower: $382,000 (after fees deducted from advance)
Annual interest at 10.99% on $400,000: $43,960
Total cost of 12-month private deal: approximately $62,260 against a $382,000 net advance.
Present this clearly to the client. A private mortgage is a short-term bridge solution, not a long-term strategy. If the borrower cannot realistically exit into institutional financing within the term, the private mortgage is not the right tool.
How fees are structured: deducted vs. paid at closing
Most private deal fees are deducted from the advance — the lender fee and agent fee come off the top before the borrower receives funds. This means the borrower needs to account for the gap between what they borrow and what they actually receive. Some lenders allow fees to be paid separately at closing through the lawyer's trust account, but this is less common and requires the borrower to have the cash available independently.
When you build a private deal, always show the client both the gross mortgage amount (what is registered on title) and the net advance (what they actually receive). These are not the same number, and clients who are not told clearly about the difference become unhappy clients.
Want to go deeper on this?
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