A private mortgage can solve a real problem when a bank cannot help: a renewal that was declined, arrears that need to be cleared, a purchase that has to close, or equity that is needed while income is being rebuilt. But a private mortgage commitment works differently from a bank mortgage, and the details matter more because terms are shorter and costs are higher.
This is the checklist we would want any Alberta homeowner to go through before signing with a private lender, whether they arrange it through us or someone else.
At a Glance
- Add up the total cost: interest plus every fee, not just the rate
- Know exactly when the loan matures and what happens if you need more time
- Read the prepayment, late payment and default terms before you sign
- Confirm who the lender is and that whoever arranged it is licensed in Alberta
- Get independent legal advice; your lawyer should act for you, not the lender
1. The total cost, not just the rate
Private mortgages usually carry a higher interest rate than bank mortgages, and they almost always come with fees. Ask for every cost in writing and add them up:
- Interest rate and whether it is fixed for the term
- Lender fee, often deducted from the mortgage advance
- Brokerage fee, if a broker is paid by you rather than by the lender
- Legal fees for your lawyer and, usually, the lender’s lawyer
- Appraisal and any inspection costs
- Administration, discharge or renewal fees
Then look at the net amount you will actually receive after fees are deducted. If you need a specific amount in hand, for example to pay out arrears or close a purchase, make sure the gross loan is large enough to cover the fees as well.
2. The term and what happens at maturity
Private mortgage terms are short, often around a year and sometimes less. When the term ends, the full balance is due. You will either pay it out (through a sale or a refinance with another lender) or renew with the private lender, if they agree.
Ask directly:
- When exactly does the mortgage mature?
- Is renewal possible, and what would it cost?
- How much notice will I get if the lender will not renew?
If your plan depends on renewing, treat that as a risk, not a certainty.
3. The payment and how it is calculated
Many private mortgages are interest-only, which keeps the monthly payment lower but means the balance does not go down. Some lenders collect a number of months of interest in advance, or hold back a payment reserve from the advance. Confirm the monthly amount, the payment date, how payments are made and what the balance will be at maturity.
4. Prepayment terms
If your exit plan is to sell or refinance before the term ends, prepayment terms are critical. Some private mortgages are open after a minimum period; others charge a penalty or require a minimum number of months of interest no matter when you pay out. Know the cheapest point at which you can pay the loan off.
5. Late payment and default terms
Read what happens if a payment is late, if property taxes or insurance lapse, or if another charge on the property goes into default. Private mortgages can include late fees, default interest and the right to demand the full balance. These clauses rarely matter if everything goes to plan, but they matter a great deal if it does not.
6. Who the lender is and what goes on title
Private lenders range from individual investors to mortgage investment corporations and groups of investors. Ask who the lender is and how the mortgage will be registered on your title: as a first or second mortgage, and whether it is registered against any other property. A mortgage registered against more than one property puts all of them at risk.
7. Who arranged it and how they are paid
In Alberta, mortgage brokerages and the people who work for them must be licensed by the Real Estate Council of Alberta (RECA). You can check a licence on RECA’s website. A licensed brokerage should explain who it represents and how it is paid before you commit; if you have not seen that in writing, ask for it.
8. Independent legal advice
Have your own lawyer review the commitment and the mortgage documents before you sign, and make sure you understand who the lawyer is acting for. A good lawyer will walk you through the payout, renewal and default terms in plain language. Lenders commonly require it for private mortgages anyway.
Red flags that mean you should slow down
- Pressure to sign immediately without time to read or get legal advice
- Large fees requested up front, before you have a written commitment
- No written commitment, or terms that change at the lawyer’s office
- Anyone who cannot show a licence to arrange mortgages in Alberta
- Encouragement to leave out debts or adjust income on an application
- A loan with no realistic way to pay it out at the end of the term
A simple way to compare two offers
For each offer, write down the net amount you will receive, the monthly payment, the total of all fees, the maturity date and the earliest date you can pay it out without a penalty. Then estimate the total cost if you pay it off on your planned exit date. The offer with the lowest rate is not always the cheapest once fees and prepayment rules are included.
Frequently Asked Questions
Are private lenders regulated in Alberta?+
Private lenders are not regulated the way banks are, which is why the details of the commitment and independent legal advice matter. The mortgage brokerages and associates who arrange private mortgages in Alberta must be licensed by RECA.
Why are private mortgage fees deducted from the loan?+
It is a common structure: fees are paid out of the mortgage advance at closing rather than from your own pocket. That is convenient, but it means you receive less than the face amount of the loan, so check the net figure.
What happens if I cannot pay out the mortgage at maturity?+
You would need the lender to agree to renew, usually for a fee, or arrange other financing or a sale. If none of those happen, the lender can take steps to enforce the mortgage. That is why an exit plan matters before you sign.
Do I need my own lawyer?+
Yes, in practice. Private lenders commonly require independent legal advice, and it is in your interest to have someone review the terms on your behalf.
Want a second set of eyes on an offer?
If you have a private mortgage offer and are not sure how it compares, or you are just starting to look at options, NOW Mortgage can walk you through the costs and terms in plain language. Use the form below to request a call back.