What is a private mortgage?
A private mortgage is essential the same as a bank mortgage except the lender is a private individual or company. The terms and conditions of private mortgages are similar to that of bank mortgages
What rate do borrowers pay on a private mortgage?
The rate is negotiated between the borrower and lender.
Factors affecting rate include:
- Credit Report
- Down Payment
- Net Worth
- Loan to Value
- Type of Property
- Location of Property
Typical first mortgages range between 9% and 13%. Second mortgages range between 12% and 16%
What fees are involved?
You will be required to pay an appraisal fee (approximately $350.00), legal fees (approximately $1,500.00) and a mortgage broker fee (approximatley minimum $3,000.00 maximum 5%-15% of mortgage transaction).
Other fees, such as a building inspection fee are rare but also may be applicable.
Why do borrowers require private mortgages?
There are a number of reasons why borrowers require private mortgages:
Speed of closing the transaction
Bank mortgages generally take 20 to 30 days to close. Private mortgage transactions can close in as little as 4 to 10 days
Short term or bridge financing needed
Banks generally are not interested in short term or bridge financing no matter what the rate. For a rate premium, private mortgage lenders/investors will finance these transactions.
Borrower wishes to avoid CMHC fees
CMHC fees on bank mortgages can be massive.
Private second mortgage financing to avoid expensive prepayment penalties on a refinance of an existing first mortgage
Borrowers with an existing first mortgage may wish to make renovations and upgrades to their property. Funding these renovations and upgrades through a refinance of the first mortgage could cost the borrower thousands of dollars in prepayment penalties. A short-term private second mortgage to finance these renovations and upgrades could save the borrower thousands of dollars in prepayment penalties.
Second mortgages for debt consolidations
In society today, it is easy for credit card debt to get out of hand. Property owners, who have equity in their home, may wish to consolidate expensive 15% to 18% credit card debt into a second mortgage at 12%.
Borrower may not qualify for traditional bank financing
Private lenders will finance what the banks won’t. Banks generally have a strict protocol they must follow. Bankers may not be allowed leeway for personal judgment and assessment, even if the deal makes sense. For example, many borrowers are self-employed and generate large sums of revenue but show minimal income on their tax return. Borrowers may also be on a fixed income or asset rich and income poor so they do not meet the banks strict debt servicing ratios. Bank assessments of borrowers are generally heavily based on their credit report. Many borrowers may have a one time nonrecurring credit problem that can be explained. The banks generally will not take this into consideration
Property may not qualify for traditional bank financing
Banks generally shy away from financing commercial and income properties unless they are located in major cities. Private lenders/investors individually assess these properties and will provide financing if the transaction is deemed to be secure.
Agent # M08008232
Verico Best Interest Mortgages Inc. #10272