Canadian Private Mortgage Lending 101

MISSISSAUGA, ON, June 04, 2013 (Press-News.org) What the heck are Private Mortgage Loans Anyhow?

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

Private lenders have known for quite some time that conservative lending guidelines used by banks and conventional lenders exclude many individuals who are in fact able to pay back loans but that simply do not fit into the sometimes archaic guidelines. Most importantly, private lenders take into account a property's overall value and marketability as opposed to simply the borrower's credit history.

When would you want to use a Private Mortgage Lender?

- You only need a very short term loan.
- You want to purchase an unconventional property that a prime lender or bank won't finance, this could be vacation property, business real estate etc.
- You need fast financing and don't want to wait for a long approval process.
- Your bad credit history means you are likely going to be turned turned down by most conventional lenders
- You have income that cannot be 100% confirmed and this is preventing you from obtaining a traditional mortgage.

The One Major Downside of Private Mortgage Loans

The only real downside to private mortgage lending is that the interest rates are typically much higher than if you were to get financing through a major lender. But since these are typically short term loans the key factor people want to use private lending is that they need the money now to complete the build project etc.

The rates will always depend on the source of the lender. As a private mortgage lender I can walk you through the entire process and try and get you the best rates possible.

Are there any fees asscoiated with Private Lending?

With a prime or conventional lender(ie. one of the major Canadian banks), the mortgage broker is paid a commission directly from the lender once the mortgage is all setup and approved. When using a private lender, you (the borrower) pay the mortgage broker's fee directly to the broker. Private loans also incur set-up fees bringing total fees paid between 1-3% of the loan amount but this can vary.

The good news is, these fees can be financed through the mortgage loan itself. Let's say you need to borrow $100,000, and can therefore expect fees of approx $3,000 or so. In order to cover these fees, you would apply for a loan of $103,000 to cover the extra costs making things very easy in the end.

Quick Approval Process

The one huge benefit of private mortgage lending is that approval times typically happen within a week or so with funds being released in a 2-3 week timeframe making the whole process quite fast and attractive to many people.

What's the criteria to get financing?

1. Property type and value is a key element and 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.

2. Your Income. Your income can fall into one of two categories:

Confirmable income is preferred by most any lender, and is proven through Government of Canada 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.

3. 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.

4. 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.
If you are thinking of private mortgage lending or financing please feel free to give me a call at 416-645-0822 or fill out my contact form and Id be more than happy to help you out
By: Patrick Romann

Private Mortgage Lending & Mortgage Renewals Made Easy
Hi there, my name is Patrick Romann

I serve the following Markets - Mississauga, Toronto, Oakville, Burlington Ontario and am proud to be a Mortgage Agent.

For most people, their mortgage represents their largest and lowest-cost debt obligation, and their home is generally their most significant asset. That's why a mortgage plan is so important. The right mortgage plan can protect you from a financial downturn, save you thousands of dollars, and help build your wealth over time.

Please visit my website at www.patrickromann.ca