Like traditional lending options, a private mortgage allows you to get a new mortgage on the purchase of a new house or you can borrow against the equity in your existing home if you need to. Where it’s different is that private mortgages are offered by private companies, individuals, and investors rather than by traditional lenders such as banks and credit unions.
What Is A Private Mortgage?
A private mortgage is similar to traditional mortgages in some ways, but there are a few big differences that you can use to work in your favour.
For some Canadians, the current laws that federally regulated lenders (like the big banks) must follow, can make it very difficult to get a mortgage. You may have heard about the mortgage stress test that was introduced a few years back. This stress test reduced the amount of mortgage that many Canadians could qualify for with a federally regulated lender. Some Canadians were made ineligible altogether.
But because private lenders do not fall under the same regulations, they have been able to continue to help Canadians get the mortgages they require – even those Canadians who could not qualify with the major banks.
Why Are Private Mortgages Becoming More Popular?
Owning a home where you can start your family, watch your children grow up and that can be a safe space to get away from the world is a wonderful dream. But what happens when you find out you can’t go down the traditional path of a regular mortgage that most others have? Or maybe you want to explore your options for a mortgage before agreeing to one. No matter why you’re looking outside the lines of a traditional mortgage, private mortgages can be a good option.
Reasons For Getting a Private Mortgage
There are various reasons you may be seeking or thinking of a private mortgage. We are here to work with you, and make sure you can buy the home of your dreams. We have helped many people in some of the following situations secure lending when they needed it, whether they needed a loan or a complete mortgage.
One of the biggest items a lender wants to discuss, when getting a mortgage, is your income. Do you have a secure, reliable source of income? Being self-employed can mean that your income is a little unreliable or perhaps it seems low on paper because of your tax deductions. Whatever the reason, being self-employed can sometimes make it difficult to get a traditional mortgage.
Private lenders are able to look at the bigger picture. They know that an entrepreneur’s total income can become skewed after tax deductions. And they have the freedom to take this into account when they are reviewing mortgage applications.
- Bad Credit History:
Whether you have declared personal bankruptcy or just struggled a little previously with paying bills on time, if you have a less than ideal credit history it can be difficult to get your lending needs met. We can provide options, working with private lenders, to work with you so you can rebuild your credit while paying down debt or even purchasing your first home.
- Existing Debt:
Are you finding it difficult to pay down debt and get ahead because you’re being denied for consolidation loans? Working with us for finding choices for a consolidation loan – if that’s what you need – can help you rebuild your credit score and pay down the existing debt you have.
- Flexible Terms:
Some people choose private mortgages because they can get more flexible terms. While the most common mortgage type in Canada is a five year fixed mortgage, you may have reasons for wanting a more customized solution. A private lender is often more flexible and willing to work with you.
- Fast Approval:
While we strongly recommend that you get your mortgage pre-approval before house hunting, we realize that not everyone does this. Without a pre-approval, you could end up at a disadvantage with other potential buyers should you find the property of your dreams. Without a mortgage pre-approval in place, a seller may not even consider your offer – and with today’s hot real estate market, you don’t have much time to lose.
With a private lender, you are much more likely to get the fast approval that you will certainly need if you find yourself in this situation.
- Non-traditional properties:
Is the home of your dreams a little unconventional? Is it something like a tiny home, a mobile house, or even a treehouse? Traditional lenders don’t tend to be comfortable approving mortgages for non-traditional properties.
If the property you wish to buy isn’t your typical residential home, you may need to consider a private mortgage in order to get financing.
Why should I choose a private lender?
A private lender can offer the same, and more, financial products that any traditional lender can offer. A private lender has their own capital that they are using against the loan they offer, so how they lend it out is really up to them.
Our brokerage has worked with many clients who have chosen to use private lending because the options offered worked for them better than other avenues of lending, We can work with you to find the best private lending option in various areas, depending on your needs including:
- Debt Consolidation:
Thinking bankruptcy is the only option? Our brokerage has networks of lenders that can help you with a consolidation loan so that you can transition all your monthly debt repayments into one easy to manage payment. Let us help you rebuild your credit score even when others have told you that they can’t help.
- Second Mortgages:
If you need some extra cash for a big project or home renovation, but don’t have it in your savings or on a credit card, how will you get the money? A second mortgage allows you to borrow at a lower interest rate so you don’t have to pay retail, consumer debt rates.
Refinancing is when you break your current mortgage in order to get a new one. In some cases, refinancing is also used by homeowners in order to borrow money from their home equity. This differs from getting a second mortgage in that the interest rates for refinancing are often lower however there will be a financial penalty to pay for breaking your mortgage. It is important to have your mortgage broker run some calculations to determine whether a second mortgage or refinancing is the better choice for you.
- Bridge Financing:
If you’re buying and selling a home, there could be a delay in between those two closing dates but you still need the financing in place for your new home – especially if you’re using part of the proceeds of sale for your down payment. A bridge loan will help hold you over for a short period of time until the lump sum payment comes to you.
- Stop Power of Sale:
A private lender can literally help you save you home! A Power of Sale is a legal process that can happen when you fall behind in your mortgage payments. If carried out to the end, it can result in your lender evicting you from your home and selling it in order to recoup their money.
The good news is that it is possible to stop a power of sale – and this is often done with the help of a private lender. There are a variety of options for stopping a Power of Sale including refinancing, getting a second mortgage, and getting an unsecured loan. All of these options are available through private lenders.
How Much Interest Will I Have to Pay with a Private Lender?
Generally speaking – unless the private lender is a friend of family member – private lenders do charge somewhat higher interest rates than traditional lenders. This is because, a private mortgage is considered to be riskier than a traditional mortgage.
Nevertheless, if getting a private mortgage is what it takes for you to finally become a homeowner, or to get the financing you require, then it is still usually worth it.
And, since interest rates have dropped dramatically in recent years – and are not expected to rise much anytime soon, even the interest rate that you get with a private lender can be quite reasonable.
And remember, just because you are getting a private mortgage now, doesn’t mean you can’t switch to a traditional mortgage later. If you are getting a private mortgage because of a bad credit history, or because you are self-employed with a business that is just getting off the ground, you can use your mortgage term to build up your credit or strengthen your business. And at the end of your term, you may actually qualify for a traditional mortgage.
Should I Just Wait Until I Can Qualify for a Traditional Mortgage?
That is up to you but house prices have been rising rapidly over the past few years and they will only continue to climb. You may have to pay a little more in interest with a private mortgage, but the price of your new home will likely be much higher if you wait.
If the decision is between getting a private mortgage now or waiting until you can qualify for a traditional mortgage to purchase a home, you may find that getting a private mortgage now is a much more affordable option.
Why work with a mortgage broker to get a private mortgage?
It is possible to get a private mortgage on your own, however this is not an advisable course of action.
While the vast majority of private lending companies are honest and reputable, there are unfortunately a few out there that give the entire industry a bad name. Experienced mortgage brokers have extensive networks – they can easily guide you to the right private lender for your and help you avoid the few bad ones. Also, there are many lenders who work exclusively with mortgage brokers – you cannot access them on your own, even if you wanted to.
And using their extensive network, they can shop around on your behalf in order to help you find the best possible interest rate on your second mortgage. When you mortgage broker compares rates on your behalf, they only need to submit one credit check in order to shop with multiple lenders. This is important because multiple credit checks all at once can temporarily damage your credit which may make it even more difficult for you to get a mortgage.
Additionally, working with a mortgage broker is like having a coach on your side. They understand the products and after assessing your situation, they can recommend the right products for you. They will also help you with all of the paperwork and answer any questions that you may have so that you can feel good about your choice.
What if my Private Lender is a Friend or Family Member?
While this type of arrangement can work out, there are some major questions you have to ask yourself – like how this will affect your relationship with them if you become suddenly unable to make your payments.
There are also strict legal requirements, so if you are going to go this route, you still need to work with a mortgage broker and a lawyer to ensure that everything is done correctly and that all parities are protected.
Contact us today
Using private lending can be helpful in so many more ways than traditional ones, for the right person. They don’t have to follow all the same lending rules so they may be able to offer unique terms that suit your life and your situation better than what a conventional lender can offer.
When it comes to borrowing, everyone is unique in what they need and want out of the situation, so let our team help you get exactly what you need. When other places have said they can’t help, we can! We will work with you to find solutions for your lending needs. Give us a call today to set up a consultation.