Private Mortgage Returns

“As A Private Mortgage Lender, What Types of Returns Can I Expect?”

private lending returns

A private mortgage lender’s return on investment is based on the interest rate charged as well as any lump sum lender fees due on closing.

For the purposes of today’s discussion, I’m going to focus on the interest rate range that is charged for both private first mortgages and private second mortgages.

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So let’s start with the interest rate you can expect to earn from placing private 1st mortgages.

For investors that are most comfortable with first mortgage positions only, the interest rates charged will most likely range from 7% to 12%.

These rates will be relevant to both residential and commercial property financing scenarios with the actual interest rate offered and charged directly relevant to the risk assessed by the lender.

The majority of mortgages that we place are in the 8% to 8.25% range.

For someone to provide a 7% private rate, there would have to be excellent equity in the property, providing a low loan to value to the lender or investor.

The higher rates are associated with higher risk scenarios including financing for construction projects.

Private Second Mortgages Demand Higher Rates

If you’re looking to invest in private 2nd mortgages, the rates are going to be higher and will most likely fall in a range of 8% to 15%.

The majority of seconds that our office place are in the 9% to 11% range, but we also place deals all through out the range mention above for 2nd mortgages.

Once again, where the equity is very high and the loan to value low, a private second can be secured in 8% to 9% range.

The higher end of the 2nd mortgage interest rate range is going occur in situations where the loan to value is getting into the 80% to 85% range.

The higher ratio private seconds are not common among lenders and investors and our own office does not place many deals where the loan to value is at or above 80%.

Lower risk loan requests also attract more lenders and the resulting competitive pressures can push interest rates to the lower end of the range.

For each lender that we work with, we spend time discussing their expected rate of return as well as the types of properties they’re comfortable with so that return and risk can be properly matched up.

Unrealistic expectations on pricing can result in weak deal flow as some of the available financing opportunities will fall to lower priced competitors.

If you’d like to get more information on private lender rates of return for either first mortgages and/or second mortgages, then I suggest that you give me a call to discuss rates and returns further as well as your lending and investing objectives.


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About the Author Joe Walsh

I'm a Toronto Mortgage Broker that arranges mortgage solutions on residential and commercial real estate property. With over 30 years of mortgage financing experience, I'm able to quickly assess your financing requirements and provide relevant solutions for your immediate consideration. Joe Walsh Google+ YouTube Channel