Typical broker fee for private mortgage - is this fair?

[TangoWhiskey]

I plan to start doing some private lending on low loan to value properties in my home market for RRSP and TFSA money.

A mortgage broker has brought a property to me that is currently listed for 165K and needs interior updating. The single female owner has bad credit and has an 11 % private first mortgage for 60K. She want to borrow 90K to pay out the 1st and use 30 K to update the house. The broker thinks I should charge 10 % on my 90 K given the low LTV. After a few days the broker told me the new loan is now for 100K partly because the extra 10K is needed to pay a 5K fee to the broker.

This was disappointing after the broker gave me a spiel about how he's trying to get the borrower a break on rate only to turn around and charge 5.5-6 % of the loan total (5K for a 90K arranged loan) for himself.
What is fair here? I expected him to get 2-3 K but 5 K seems way out given the difference in risk profiles - he has none - and its bugging me to the point I don't want to fund this deal now.
Thanks for all input from people with experience in this type of lending

 

[Thomas Beyer]

Fair is what people are willing to pay. Is $65,000 for a new BMW fair ? Is $350/h for a lawyer fair ?

3-5% upfront fees are NOT unusual for smaller sub $100,000 loans. As loans go up, upfront fees decline % wise to maybe 1.5-3%.

Common is also to deduct upfront 6 months interest i.e. have it pre-paid. So the poor borrower gets only $90,000 as $5000 is 6 months interest (at 10%/year) and $5000 for broker. Btw: you too should charge a fee. There are often two fees: one from the lender, and one for the broker, roughly 50/50.

I think 10% is about right interest at sub 70% LTV.

So, yes, $5000 for a $100,000 loan is as fair as a $65,000 BMW.

 

[JROC]

Hi Tango,

I have invested in a few private mortgages. Private mortgages are risky but this deal doesn't sound that bad.
$165,000 Current Price (has the property been appraised?).
$100,000 total loan (your loan will be in the first position which is good).
60% LTV? thats pretty good borrower has 40% equity in the property.

A couple questions?
How is the borrowers income? Credit report? How long is the term? What is the exit strategy? Where is the property located?

On a first private mortgage with 40% equity your probably looking at 8-10% plus a 1-2% lender fee. I wouldn't accept anything less than a total return of 10% on any private mortgage deal. You can invest in a MIC for 7-8+%.
I agree with you that the broker should be getting $2500 - $3000 but in this case the deal is under $100,000 and $5k is ok.

You said the deal went from $90K to $100K because of the $5K broker fee. What is the other $5K for? Your fee?