PRIVATE MORTGAGE LENDERS
Private mortgage brokers have become increasingly more popular in Canada. As mortgage legislation has been tightened it has become more and more difficult for ordinary Canadian citizens to qualify for a mortgage at the traditional banks. Over the last ten years, the federal government has instituted a number of stricter lending rules.
Interest rates have been rising as have property prices. Traditional banks are now compelled to apply the stress test to every mortgage applicant before they can qualify for a mortgage.
Private lenders base their decisions on the value of the property
Not everyone has a spotless credit record and not everyone can pass the stress test to qualify for the
home of their dreams. This is where private lenders come in handy.
Private lenders are not regulated by the federal government and the rules that apply to federal or A lenders do not apply to them. Private lenders are investors who have money that they want to invest for a return. A private lender is more concerned about the value of the property that the borrower intends to purchase than he is in the credit score or the employment status of the lender.
This is because they secure the money that they lend you against the value of the property. This is also why they will insist on a careful appraisal of the property before they agree to the loan. If you fail to make repayments in accordance with your loan agreement, they are entitled to foreclose on your property.
When the banks won’t help you, a private lender will
Private mortgage lenders specialise in offering loans to people who find it difficult to secure a loan
through a traditional bank.
Dealing with a private lender is a much more personal experience.
Private lenders are not bound by the big corporate structures that the banks have and so they can
agree to private and arrangements and terms and conditions that are tailored to your funding
Private lenders fill an industry need
There are many reasons that people choose to use private lenders. Listed below are some of them:
- They want to take advantage of an investment opportunity and can’t wait for a long time for approval.
- Their credit score is not high enough and traditional banks won’t approve a loan.
- The property they want to buy will not receive bank approval.
- They are self-employed or a commission earner and the bank’s income criteria disqualify them.
Interest rates on private mortgages
The interest rates that you will pay to a private lender will be higher than those that you’ll pay to a traditional bank. This reflects the higher risk involved. If you offer a higher down payment you mitigate that risk.
In this way, you can reduce the cost of the private mortgage that you receive.
Private mortgages are interest only loans that are taken over the short term. The term of the agreement is typically one to three years and the person taking the loan should have an exit strategy from the start.
The benefits of private lenders
- The approval process for private mortgages is much quicker. This is because the private lender does not have all the bureaucratic requirements of a traditional bank. A private lender should approve your loan within ten days to two weeks. The traditional banks will take a month to a month and a half to process your application.
- Private lenders tend to specialise in various areas which means that you are matched with someone who will understand your circumstances and your business requirements.
- It is much easier to qualify for a private loan. Private lenders are more concerned with the value of the property than in the history of the borrower. They have a higher risk tolerance.
- There are a lot less red tape and an easy pre-approval process.
- Private lenders make good options for those who want to buy and flip for a profit.
- Private mortgages are tailored to the specific needs of the borrower.
- Private lenders are prepared to take the risk of a second mortgage.
The disadvantages of private lenders
- They offer short-term loans only.
- The interest rates are higher.
Considerations when looking at a private lender
- Interest rates.
- Penalties for breaking the contract.
- Prepayment privileges – prepayment penalties in the contract could prevent you from converting the loan to a conventional mortgage when you are ready to do so.
- The size of the required repayments.
The costs of private borrowing
- Appraisal costs for the secured property. You will have to pay the costs so you should not arrange for an appraisal before you find a lender.
- The legal fees for both you and the lender.
- Higher interest rates.
CONSULT YOUR BROKER
We work with a large number of private investors, so we can match you with the lender that suits your requirements.
When you approach us about a private mortgage we will sit you down and discuss your needs and your financial strategy for the future.
that will suit your investment requirements and your lifestyle needs.