Private mortgage rates are higher than bank rates. That part everyone knows. What’s less obvious is how much they can vary from one borrower to the next, and why. Two people borrowing the same amount can get very different offers. Understanding what drives the rate helps you put your best file forward and judge whether an offer is fair.

Why private rates are higher in the first place

Private lenders take on loans that banks and alternative lenders won’t, for shorter terms, with money that usually comes from investors expecting a solid return. They also do more work per file: each property and situation is assessed on its own. (New to private lending? See What Is a Private Mortgage?) The higher rate pays for that risk and flexibility. For a full comparison of lender types, see Private Mortgage vs Bank vs Alternative Lender.

The factors that move your rate

How much of the home’s value you’re borrowing

This is usually the biggest factor. Lenders look at loan-to-value (LTV): the total of all mortgages on the property as a share of its value. The more equity left over, the more protected the lender is, and the better the rate tends to be. Borrowing a little less can sometimes move you into a better pricing tier. Our guide to loan-to-value explains how it’s calculated.

First or second mortgage

A first mortgage is paid first if the home is ever sold. A second mortgage is only paid after the first. Because the second lender carries more risk, second mortgages generally cost more than firsts. See Private Second Mortgages for when that trade-off makes sense.

The property itself

Lenders prefer homes that would be easy to sell: typical houses in cities and larger towns. Rural properties, acreages, homes that need major repairs, or unusual buildings can mean a higher rate, a lower maximum loan, or both.

Your exit strategy

A clear, believable plan to repay, such as refinancing once your credit recovers or selling a property, makes a lender more comfortable. A vague plan makes them more cautious.

Your credit and situation

Private lenders put less weight on credit than banks do, but it still matters. Recent missed payments, active collections or an ongoing proposal can affect the rate or the fees.

Term and size of the loan

Very short terms, very small loans and very large loans can all be priced differently. Fees, in particular, are often higher as a percentage on smaller loans.

Rate versus total cost

The interest rate is only part of the price. Lender fees, broker fees, legal costs and renewal fees can change which offer is actually cheaper. Always compare the total cost over the term, not just the rate. Our guide to private mortgage fees breaks these down.

How to get a better offer

  • Lower your LTV if you can. Even a modest reduction in the amount borrowed can help.
  • Bring a clear exit plan. Write down how and when you’ll repay.
  • Have your documents ready. A complete file gets better attention. See what to prepare.
  • Compare more than one lender. Pricing differs between lenders, and a broker can shop several at once.
  • Ask about every fee in writing before you agree to anything.

Get a real number for your situation

Rates change with the market and with each lender’s appetite, so the only useful number is one based on your property and your plan. A licensed mortgage broker can compare offers and explain the full cost.

This article is general information, not financial or legal advice. Lender requirements, rates and fees change and depend on your situation.