UPDATE 2-Canadian mortgage lender Home Capital to go private in C$1.7-billion deal

(Adds deal details, background)

Nov 21 (Reuters) - Canada's Home Capital Group Inc said on Monday the mortgage lending company would be taken private by Smith Financial Corp in a C$1.7 billion ($1.27 billion) deal.

The all-cash deal for C$44 per share with the family office of financial entrepreneur and co-owner of proxy advisory firm Glass Lewis, Stephen Smith, is a nearly 63% premium to Home Capital's closing price on Friday.

The deal comes amid weak demand for mortgage due to a sharp rise in borrowing costs and as smaller lenders struggle to gain traction in Canada where around 80% of the mortgage market share is dominated by the Big Six banks.

Earlier this month, Home Capital had reported a nearly 21% drop in third-quarter profit. The Toronto-based lender had rebuffed a takeover offer of more than C$28.60 per share from an unnamed buyer, saying it undervalued the company.

In 2017, Warren Buffett's Berkshire Hathaway Inc had extended a lifeline to Home Capital, buying a 20% stake and offering a C$2 billion credit line when investors pulled more than 90% of funds from its high-interest savings account.

The deposit exodus was the fallout of the company being accused of concealing a mortgage fraud. It later admitted to the fraud and reached a settlement with the Ontario Securities Commission. Buffett sold the stake in the company in 2018.

The deal with Smith Financial includes a "go-shop" period until Dec. 30, during which Home Capital will be allowed to seek other bids.

The lender would be delisted after nearly four decades of being a public company when the deal closes, which is expected in the middle of next year.

If it does not close before May 20, shareholders will be entitled for an extra payment of 25 Canadian cents per share for every three months of delay, the company said. ($1 = 1.3425 Canadian dollars) (Reporting by Niket Nishant in Bengaluru; Editing by Vinay Dwivedi and Arun Koyyur)