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Who Provides the Mortgage?
Alternative mortgages can come from institutional B lenders, credit unions, MICs and other specialized lenders. Private mortgages are funded by private individuals or private lending companies.
ALTERNATIVE MORTGAGES · QUICK ANSWER
Alternative Mortgage vs. Private Mortgage: What's the Difference?
A private mortgage is one type of alternative mortgage, but the terms are not interchangeable. Alternative lending is the broader category and can include institutional B lenders, mortgage investment corporations and private lenders. The right option depends on how far the file sits outside traditional bank guidelines.
← Back to Alternative MortgagesTHE SIMPLE DISTINCTION
Alternative Lending Is the Category. Private Lending Is One Part of It.
When a bank cannot approve the mortgage, the next option is not automatically a private lender. There may be institutional alternative lenders available before private financing is necessary.
Traditional Bank
Strictest guidelines
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Alternative Lender
More flexible qualification
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Private Lender
Most equity-driven
HOW THEY DIFFER
The Further You Move From Bank Guidelines, the More the Structure Changes.
Both alternative and private lenders can solve files a bank will not approve, but they generally differ in qualification, pricing, term length and how heavily they rely on equity.
02
Qualification
Institutional alternative lenders still use income and credit guidelines, although they are more flexible than banks. Private lenders can place substantially more weight on property equity.
03
Interest Rates
Alternative institutional rates are generally higher than bank rates. Private mortgage rates are usually higher again because the lender is accepting greater risk and flexibility.
04
Fees
Alternative and private transactions may involve lender, broker, appraisal and legal costs. Private financing typically carries higher overall fees.
05
Term Length
Institutional alternative mortgages can have more conventional terms. Private mortgages are commonly short-term financing intended to solve a specific problem.
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Exit Strategy
The more expensive and short-term the financing becomes, the more important it is to know exactly how the mortgage will eventually be refinanced or paid out.
HOW THE LENDER SHOULD BE CHOSEN
Use the Lowest-Cost Lending Tier That Can Actually Approve the File.
The objective is not to put every difficult mortgage into private financing. If an institutional alternative lender can approve the file at a lower cost, that is generally the better place to start.
Private financing becomes useful when the file requires more flexibility, faster execution or an equity-driven solution that institutional lenders cannot provide.
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Start With the Best Available Tier
Do not use private money if a lower-cost alternative lender works.
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Compare Total Cost
Rate, lender fees, broker fees, legal costs and term all matter.
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Understand the Purpose
Know exactly what problem the mortgage is solving.
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Plan the Exit
More expensive financing should have a clear path to repayment or refinancing.
THE PRACTICAL ANSWER
Not Every Alternative Mortgage Is a Private Mortgage.
Private lending is generally the more flexible and more expensive end of the alternative lending spectrum. A good mortgage strategy looks at the entire market and uses the least expensive lender that can realistically approve the file while still solving the problem.
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