A few months back a gentleman inquired about a small private mortgage. It was for $20,000. This is an amount where you really question whether it is worthwhile because there are minimum costs involved. No matter how little you borrow, the amount of administrative work is the same. So in general, even for such a small amount the minimum lender fee is $2000. The legal fee would be around $1500 and you would need an appraisal that is around $300. So before you even talk about interest costs, you are paying out $3800 in costs. That is 19% of the $20,000.
You really have to need this money to justify the costs. All I know is that he needs this money to pay off some debts. Like most potential clients, he provided very little additional information. It is common, as we have never met, so there is a trust issue with releasing personal details. Unfortunately, the only way I can help is if I know the whole situation.
In this case, if he had told me that he was temporarily having trouble paying his mortgage AND his mortgage is due in 6 months, I would have encouraged him to go ahead. However, I knew very little about his situation so his complaint of the loan being too expensive made complete sense.
Unfortunately, now the current lender has notified him that they will not renew his mortgage. He will now have to settle for a higher rate on his first mortgage which is much larger; costing him tens of thousands of dollars as missing the mortgage payment has ruined his credit. And if he cannot afford the mortgage at the higher rate, then he may have to sell his house.
So here is an example of where in absolute terms, the loan was expensive, but in the big picture, getting the loan would have saved him tens of thousands of dollars.
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