In the current private lending landscape, we are seeing a flood of aggressive rates. Term sheets are circulating with headline rates as low as 4.95% to 5.75%.
As a broker, it is natural to want to secure the lowest possible number for your client. It looks great on the commitment letter, and it makes for an easy sale.
But as experienced professionals, we need to look past the sticker price. When you dig into the fine print of these “cheap” private mortgages, the math often reveals a different story; one that involves significant backend fees and restrictive terms that can damage your client relationships long-term.
At Spark, we believe in transparency. Here is a breakdown of why a slightly higher rate upfront often results in a lower total cost of ownership.
The “Fine Print” Traps
There are three major issues hiding inside many of these sub-6% private offers:
1. The Renewal Trap Many low-rate lenders charge a renewal fee of 1.00% to 1.90%. The kicker? This is often charged on the original mortgage amount, not the remaining balance. Even if your client pays down the principal aggressively, their renewal fee remains painfully high, driving the effective annual percentage rate (APR) well above 7% or 8%.
2. The Handcuffs (5% IRD) Flexibility is currency in the private space. However, we are now seeing mainstream private lenders attaching a 5% Interest Rate Differential (IRD) penalty to these low-rate mortgages.
If your client needs to sell, refinance, or move to an A-lender before the term is up, they are hit with a massive exit penalty. They are effectively handcuffed to the lender.
3. The True Cost When you combine a 1.9% renewal fee with a restrictive exit penalty, the “cheap” 4.95% mortgage becomes incredibly expensive the moment the client needs to make a move.
The Spark Alternative: Honest Pricing, Total Flexibility
We built our program for clients who have strong equity and want a straightforward, fair deal. We don’t use teaser rates to get you in the door only to lock you down later.
If you have a deal with under 50% Loan-to-Value (LTV) on a built residential property (no bare land), here is how Spark compares:
- The Rate: 6.50%. We are upfront about this. It is sustainable, fair capital.
- The Renewal: 25 bps (0.25%). We want to keep your business, not gouge it.
- The Freedom: Our mortgages are fully open after 3 months.
This is the most critical difference. With Spark, your client isn’t facing a 5% penalty to leave. If their situation improves or they qualify for traditional financing in four months, they can move on. No handcuffs.
The Bottom Line
Don’t risk putting a client into a contract with a 5% exit penalty just to save a few points on the headline rate.
If you have a residential file with strong equity (<50% LTV), send it to Spark. We offer quick funding, minimal paperwork, and terms that protect your client's future flexibility.
Ready to submit? Contact our underwriting team today to discuss your file.
