Private Mortgage
What is a private mortgage?
Private lenders realize that the traditional guidelines for mortgage approval offered by the major banks and Credit Unions may not fit everyone. Therefore, they offer private mortgages to those whose mortgage application has been turned down. Ontario private lenders take the value of the property and the individual’s assets (cash or savings) into account when offering a mortgage.
Private mortgages in Ontario are short term loans that usually last from 1 to 2 years and are interest only mortgage loans.
Who can benefit from a private mortgage?
A private mortgage is a suitable option in the following situations:
- You are purchasing a non-traditional property that traditional financial institutions do not approve
- You need quick financing and can’t wait for lengthy approval processes
- Your bad credit history means you are being turned down by conventional lenders
- You require a short term loan ( Typically 1-2 years)
- You can not show sufficient proof of income
Types Of private mortgage lenders:
There are 3 main common types of private lenders. Please find below a description of who these lenders are.
- Individual: Refers to a lender that is an individual investing their own personal funds toward private lending.
- Syndicate: Refers to a group of investors who invest their own personal money as a group into a mortgage.
- Mortgage investment corporation (MIC): Refers to a group of investors pulling together their personal funds into several different mortgages simultaneously.
It is important to mention that all of the three types of private lenders require the borrowers to meet
certain criteria to qualify for a private mortgage loan.
What are the rates and fees for private mortgages?
Because private mortgage loans are short term and are usually for clients with poor credit history and or lower income, this type of mortgage loans usually comes at an interest rate roughly about 1-4 percent more than traditional prime interest rates.
It is important to understand your obligatory payment structure, rates and length of your loan. Contact Esi Ghassemi to go over the paperwork to ensure you understand it fully before signing any paperwork with a private lender.
Private mortgage rates
Frequently asked questions
What Is The Difference Between A First Mortgage And Second Mortgage?
A first mortgage is the first loan taken out on a property. If a default happens on a mortgage payment, the first lender has the first right on the property to recover the outstanding payment. A second mortgage is a loan taken out on a property after the first mortgage. Typically, the interest rate on a second mortgage is higher than the charge on the first. The second mortgage is used to finance up to 95% of the purchase price or the appraised value of the home. Even though it comes with a higher interest rate it is still more cost effective than the insurance provided by Canada Mortgage and Housing Corporation or Genworth insurance when borrowing 80-95% of the value of the home.
What Is a First Mortgage?
A first mortgage is referred to as a primary loan on a property. This loan has priority over all other loans and claims on the property since it is the primary loan that pays for the property. The first mortgage is also referred to as the first lien since it is the original mortgage taken by a borrower on any one property. If the property has been refinanced then the refinanced mortgage is assumed as the first mortgage.
What is the purpose of a first mortgage?
The main purpose of a first mortgage is to buy a home. If there was no first mortgage, people would have to buy any house they want with cash because there would be no mortgage loans. Mortgage loans make it possible for the majority of Canadians to own a home. In Ontario people can put down as low as 5 % of the value of a home as down payment in order to qualify for a mortgage loan when buying a home.
What is a second mortgage?
A second mortgage is a second rank mortgage while the original mortgage is still in place. In the event of a mortgage default, the original mortgage receives a total pay off from the liquidation of the property. Since the first mortgage takes priority in fulfilling the outstanding amount of the loan first, the second mortgage comes with a higher interest rate compared to the first mortgage.
What is the purpose of a second mortgage?
Second mortgages can be used for a variety of purposes such as home renovations, starting a new business, university/college expenses and any big purchase. Since it is a home loan, the installments are added to your current mortgage loan and are much more affordable than personal unsecured loans. This is because the interest rates are much lower. Another advantage of a second mortgage is that the monthly interest payment is also tax deductible just like a first mortgage.
