Private Mortgage

It is difficult to get approved for a mortgage in Canada and there are strict requirements for banks and financial institutions to provide them. Income, debt, financial well being, credit all factor in for these more traditional ways of lending. However, mortgages are not a “one size fits all” proposition. Not being able to meet these requirements does not lessen the desire to own a home, so sometimes people look to private mortgages to get them started.

What defines a Private Mortgage and how do they work?

A private mortgage can be “private” in the sense that it is being held by an individual or a group who specialize in private mortgages, or some institutions specialize in “private” mortgages and are usually comprised of a group of investors who see mortgages as a fairly safe way to invest. These factors may make it easier to obtain a private mortgage.

Sometimes people can have poor credit but not necessarily be a credit risk. They may have fallen on hard times or been subject to circumstances beyond their control, but once they get the ship righted, they want to be able to have what others have, a home of their own. Private lenders are first and foremost investors, so they aren’t as strict with their requirements where credit is involved. A private mortgage will also make sense if the buyer doesn’t intend to keep the property for long or if they have non-traditional income.

As private loans are meant to be short-term, they can be amortized anywhere from six months to perhaps three years, after which the borrower should be able to move to an A or Alternative lender. The short – term nature of these mortgages means that the investor will charge a higher interest rate in order to make a good return in less time. Private mortgages can also be interest – only, so no amortization and nothing being paid off of the principal amount. The loan does not decrease over time as it will if amortized.

There may also be a need for speed in obtaining a mortgage and if so, private is typically faster and easier, albeit with more cost in terms of rates and fees and perhaps more risk. A mortgage professional is invaluable when it comes to borrowing privately.

Key – Takeaways

• Most private lenders require an exit strategy set out at the onset of the loan. This means that the borrower has a plan for obtaining other financing, or intends to sell when the term of the private mortgage is up.
• Private mortgages are meant to be short term options.
• Some private lenders will provide a mortgage based on the property’s value vs income.
• A licensed mortgage professional is highly recommended to guide you through a private mortgage.

If you find yourself in need of a short term mortgage in order to carry you over a situation that will not be ongoing, please let us help. Over the years we have built up a base of very good private mortgages lenders and understand their products very well so that we can tailor our clients’ needs to the lender we think will best fit that need.