Private mortgages are more expensive than bank financing. Rates are higher, there are usually upfront fees, and terms are short. That cost reflects the higher risk a private lender takes on, since they’re lending to borrowers or properties that banks won’t finance on standard terms.
The cost is only worth paying if it solves a real problem and leads somewhere better. This guide breaks down the typical costs and terms, shows what a year of private financing can actually cost, and explains how it usually fits into a longer-term plan.
Typical terms
What private mortgages often look like
| Feature | Typical range |
|---|---|
| Interest rate (first mortgage) | Roughly 8% to 13%, higher for riskier deals |
| Interest rate (second mortgage) | Often 10% to 15% or more |
| Lender fee | About 1% to 3% of the loan |
| Broker fee | About 1% to 2% of the loan, if a broker arranges it |
| Loan-to-value | Usually up to about 65% to 80% of the property value |
| Term | 6 months to 2 years, often 1 year |
| Payments | Usually interest-only |
| Renewal | Possible, but typically with a new fee |
A worked example: one year, $300,000
Suppose you borrow $300,000 on a one-year, interest-only private first mortgage at 9.99%, with a 2% lender fee and a 1.5% broker fee. Monthly payments are interest-only at about $2,498.
One-year cost breakdown
That’s why the rate alone understates the cost. Upfront fees are paid once, so they hurt most on short terms. If the same mortgage is renewed for a second year with another 2% fee, the total cost keeps climbing.
How private financing fits into a plan
A typical one-year private mortgage plan
- Month 0
Fund the private mortgage
Solve the immediate problem: complete a purchase, pay out urgent debt or stop a power of sale.
- Months 1–8
Fix what blocked bank financing
Rebuild credit, file taxes, document income or finish renovations. Make every payment on time.
- Months 8–10
Apply to refinance
Approach a B-lender or prime lender, ideally through a broker, with time to spare.
- Month 12
Exit
Refinance or sell and pay out the private lender before the term ends.
Ways to reduce the cost
- Borrow only what you need. Lower loan-to-value usually means a better rate.
- Choose the shortest term that realistically fits your exit.
- Compare several lenders through a broker who works with private funds; fees are negotiable.
- Ask about prepayment terms. Avoid long minimum-interest periods if you expect to refinance early.
- Consider a second mortgage if breaking your first mortgage would trigger a large penalty; compare total costs both ways.
This article is general information, not financial or legal advice. Private mortgage costs vary widely. Examples are illustrative and rounded. Last reviewed September 2026.