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  • Writer's pictureSteven Himelfarb

Do you need a Private Mortgage?

Have you been trying to get a mortgage and everyone has turned you down?

You may still have options with a private lender.

That is where I come in. I help people gain access to this hard-to-find group, do better, pay less, and save time when trying to find a private mortgage in Ontario.

What is a Private Mortgage?

A private mortgage is simply a loan given by a person or company that isnt connected to a financial institution that chooses to lend its money to you personally. They can be a person, friend, colleague, but often someone you don’t even know – yet. :)

Have you been turned down by the bank or other lenders? With the current mortgage stress test (qualify at 5.25% or 2% above contract rate) and more challenging qualification requirements, it’s becoming more difficult for some to get mortgages from traditional lenders, like Banks, Monoline Lenders, and even Mortgage Investment Corporations (MICs). The people particularly affected are the credit challenged, self-employed, first-time home buyers, and those who want to buy properties that many lenders wont lend to (like a waterfront cottage or land or other investments), including people wanting a construction or renovation loan or even want to pay off their CRA taxes.

For these reasons, the need for a private mortgage has increased in popularity and continues to do so. Their market share has doubled since 2015 according the Bank of Canada.

Gaining access to this market requires is typically done through experienced brokers who have built these important relationships and know how to get creative and structure situations to get things done for you. Its what I specialize in.

What is different about Private Lenders and Private Mortgages?

They too are looking to make a return on their investment, but the way they do business is different than traditional lenders. They are faster to approve, require less documentation, are more flexible, and will do many things other traditional lenders wont. In exchange for these benefits, you will pay a higher rate and fees that are not typical of traditional lending. Each private lender has its own specific way they do business, but in the end, if you both align, you will get that needed loan that you couldn’t get elsewhere.

Private Lenders are property focused, meaning they first care about what they are lending on…is the property or land of value and where is its location. Most Private lenders in Ontario only lend in Ontario. The good thing here is they don’t look at you, your income, your credit, and your debt first, or at all. Most private lenders care about the property, your credit history to gauge your ability to repay the loan, not your beacon score, and your exit strategy.

Private loans are equity only loans. Meaning if you can come up with the initial investment (20%), they will handle the rest. Here, the property is what is being secured. Think about it like this, when you get a traditional loan, you are essentially getting a loan against your income so you can buy property. When you use a private lender, the loan is against the property and not your income. If you default, they take your home. It isnt that cut and dry, but that is why they care about the property and location first to ensure it is a good investment for them above and beyond rates and fees. Again, they aren’t looking to your income, just your ability to repay the loan.

A private mortgage is interest only (in most cases). Meaning you will only be paying interest as you repay your loan. This can be great as your payment is likely to be less than if you had to repay principal and interest as your mortgage payment. The flip side to this is you aren’t ever paying down your mortgage. This isnt all bad. Savvy investors know how to use leverage and this can be a good thing. If you want to learn more, I can show you.

As mentioned, fees and costs are greater. Currently, most 1st mortgages start at 5.99% and 2nd mortgages at 7.99% with a lender fee of 2%-3% of the cost of the mortgage. In addition, most brokerages will charge a fair fee typically consistent with the lender’s fee. Working with a good broker can help you structure and save on your rate, fees, and terms. Leverage them.

Most private lenders only lend on a short-term basis. Like 6 months to 18 months. Unlike the traditional routes that offer 1-5 year+ loans with rates that fluctuate with BOC rates or bond yields, your rate is consistent based on your contract. This can be great for certain emergencies, short term goals, or strategic investments, but what happens at the end of this short term loan? You need to repay it all. Again, you are only paying the interest payments along the way to gain access to all this money to do something with it. Some lenders will allow you to renew your mortgage with them, along with a potential new rate and the certainty of more fees, just like the first time….each time you renew. It can be expensive. And, sometimes that private lender may not be able to (committed that money elsewhere) or want to renew with you. Should this happen you need to start again and find another private lender.

Many private lenders offer fully open loans. Some are open with penalties and many other variations depending on the lender. A fully open mortgage allows you to cancel and repay your principal loan without penalty at any time. Rather than having to wait until you finish your term, you can repay it when you can without any pre-payment penalties.

Location, location, location.

Private lenders will often lend anywhere in Ontario. Traditional lenders will only lend in certain location (even by municipality), on certain types of properties and change their rates, products, terms and qualification requirements accordingly.

There is a lot to know about this space. That is where I come in. A private loan is not typically a long-term approach. I work with you to improve your situation so you can get into better loan options over time. Everyone’s situation is different.

I will help you do better. Even if you already have a private mortgage. I have access to over 60+ private lenders that will compete for your business. Because of this you will get lower rates, save time, pay less, and get a mortgage that best suits your needs. This can be a shady space…I make it transparent, stress-free, and easy, with expert advice every step of the way.

If you want to learn more about your options and do better, feel free to call anytime.

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