PRIVATE MORTGAGE

is short-term, interest-only loan, ranging in length from 1 to 3 years

Private mortgages are short- term, interest-only loans, ranging in length from 1 to 3 years. Interest only loans do not require homeowners to pay the mortgage principal down, and instead only require interest payments each month.

Private lenders have realized that conservative lending guidelines used by banks and conventional lenders exclude many individuals who are in fact able to pay back loans. Most importantly, private lenders take into account a property’s overall value and marketability as opposed to simply the borrower’s credit history.

Private Mortgage

Why would I use a Private Mortgage Lender?

You would use a private mortgage under any of the following circumstances:

Unconventional Property

You want to purchase an unconventional property that a prime lender or bank won’t finance.

Fast Financing

You need fast financing and don’t want to wait for a long approval process.

Bad Credit History

Your bad credit history means you are being turned down by conventional lenders.

Short Term Loan

You only need a short-term loan.

Nonconformable Income

You have nonconformable income that is preventing you from obtaining a traditional mortgage.

Types of Private Mortgage Lenders

Individuals

Individuals lending personal funds looking to achieve a maximum return for every invested dollar

Syndicate

Group of individual investors form a funded pool which is invested on a case-by-case basis.

Mortgage Investment Corp

Group of investors who pool funds available to several deals at once, as long as they meet lending guidelines.

Characteristics of a Private Mortgage

Interest rates 10%-18%

Private Lender’s mortgage rates are the highest and should be used as a last resort.

Fees 1%-3%

Private mortgage fees, including broker fees and set-up costs will amount to 1-3% of your mortgage amount.

Terms

Terms on second mortgages from Private Lenders can range from 1 to 35 years

Private Mortgage Lenders Specialize

Private Lenders will often become an expert in a certain lending category. Some examples include:

Commercial vs Residential

Private Lenders will generally specialize within a property type to focus investment.

Re-finance for debt consolidation vs Renovation etc.

Lenders will sometimes specialize based on the reason for seeking a mortgage loan. Some lenders may only provide funds to those who are refinancing with the intention of purchasing another property.

Prefer Urban Areas

Large urban centres are more appealing to Private Lenders as these areas carry more real estate value.

Often Prefer Region They Live In

Lenders are most comfortable investing in the area they live as they can personally evaluate the property. However, this is not always the case.

What Criteria Will Private Lenders Look At?

More so than prime or conventional lenders, private lenders have tighter guidelines on other factors to compensate for the added risk.

Property Type and Value

This is arguably the most important factor in being approved by a private lender. The mortgaged property must be in good condition and will have to undergo a strict appraisal before you are approved. If you have a poor credit score, you are considered a riskier client and lenders need to ensure that their investment is secure, in case you default on your mortgage.

Income

Your income can fall into one of two categories: confirmable and non-confirmable income. Confirmable income is preferred by lenders, and is proven through Notice of Assessments (NOAs).Non-confirmable income, common among self-employed or commission based employees, forces lenders to use an estimate of your income based on the average income typical of your employment.

Down Payment

(if purchasing)

With a private mortgage lender, the minimum loan-to-value ratio on the property is 85%. That is, you need to put in a down payment of at least 15% to be approved. If you can afford to put in a higher down payment, then it is advisable to do so. A larger down payment means you have more funds invested in the property and that you have more at stake. Lenders also take this as a sign that you can keep track of your personal finances.

Equity

(if refinancing)

If you are refinancing, private lenders may allow you to go up to a maximum of 85% in loan-to-value. For example, if your property is value at $400K, you can refinance up to $340K. Many private lenders prefer a maximum LTV of 75%, especially in British Columbia. With respect to a minimum equity stake in your property, there is none.

SUMMARY

The principal difference between prime lenders and private mortgage lenders is that private lenders consider unique properties based on a borrower’s ability to pay back a loan, not just on credit history. Every client is evaluated on an individual basis taking into account the points mentioned above.