Private Mortgages and Private Mortgage Lenders
What is a Private Mortgage?
A Private mortgage is a short-term, interest only loan. They are often short-term financing solutions that can range from 3 months, 6 months to 1 year. They are interest only loans, whereby no principal is paid off. In essence, monthly payments are “interest only” and do not bring the overall amount of the loan down.
Who Requires A Private Mortgage?
Those who may:
- Have been turned down by a bank or traditional lender
- Cannot immediately prove their income to a bank or traditional lender
- Require immediate financing
- Need short-term financing with a quick approval turnaround time (24 hours or less)
- Commercial purchases
- Home Improvement Financing
- Debt Consolidation
Private Lenders 101
Private Lenders specific lenders who realize that there are clients who may have bruised credit and/or need short-term financing and can in fact make the payments, despite being turned down by traditional lending institutions.
Private lenders will often bypass a borrower’s credit history and instead, base their evaluation by examining a property, it’s current value, it’s marketability (all via an appraisal) as well as the owner’s equity in the property.
Loan To Value
The Loan To Value most Private Lenders will have an appetite for is in the 80% or under range. The lower the loan to value, the easier it often is to secure a private mortgage as well as the lower the potential mortgage rate. There are some private lenders who will go above 80%, but their rates are higher, so each borrower scenario must be examined.
To calculate your Loan To Value, simply divide the mortgage amount owing or required by the value of the property. For example: $400,000 owing/required on a property worth $500,000, means the Loan To Value is 80%.
$400,000 divided by $500,000 = 0.8 (aka 80%)
Types of Private Mortgage Lenders
There are generally three types of Private Lenders: Individual, Syndicates or Mortgage Investment Corporations (MICs).
Private Mortgage Rates And Fees
Borrowers who require a Private Mortgage can expect to pay interest rates from 7.99% up to 12.99%.
Securing a private mortgage will also require fees that must be paid. These fees range from 2% - 4% of the mortgage amount and can sometimes be incorporated into the overall loan amount, minimizing out of pocket expenses.
Despite the rates and fees, Private Mortgage Lenders, along with your mortgage agent / broker, do want to eventually move a file back to a traditional lender, hence the reasoning they generally focus on one year terms (maximum).
This timeframe often allows a borrower to reestablish credit, get their income documentation in order, etc., allowing them to reapply with a traditional or alternative lender, who will over a much lower rate on the mortgage loan amount.
I only work with Private Lenders who are licensed and regulated by The Financial Services Commision Of Ontario, the same government entity who oversees my Mortgage Agent License.
If I may help you secure a private mortgage or answer any other questions related to private mortgage options, please feel free to reach out to me at anytime.