In general, prices for Canadian homes have risen about 33 percent since 2009 and there are no signs of the market cooling down, especially in cities such as Toronto and Vancouver. Canadian banks are more selective about who they lend money to these days which often leaves a private loan as a suitable alternative and many potential homeowners are turning to private mortgage lending even though their rates tend to be higher than traditional lenders.
Why People Turn To Private Mortgages
Some homeowners turn to private lenders because traditional lenders have turned them down due to things such as an unreliable income (self-employed, freelancers) and/or a bad credit history. Homebuyers often seek the assistance of professional mortgage brokers such as MortgageMeister.com as they are able to act as a matchmaker between those looking to borrow money and those looking to lend it. Mortgage Brokers also have access to alternative lending solutions not available at the bank. These borrowers are willing to pay higher interest rates since they’ve been turned down by institutional lending sources. It’s been estimated that approximately five percent of the nation’s mortgage market consists of private loans.
What is a Private Mortgage?
A private mortgage is a legal person-to-person loan where the lender is then named as the mortgage’s lien holder. In addition, some lenders may pool their money to create a corporation which then lends money to those who have been denied by a traditional lender. Private lenders often end up with clients who have been referred to them by mortgage brokers as well as traditional lenders who have turned them down. This private mortgage market is in turn monitored by the Office of the Superintendent of Financial Institutions.
Private lenders will present a loan agreement which lists the official terms and conditions of the mortgage. Many private lenders prefer to deal in short-term mortgages, but others are more flexible when it comes to the length of term, often providing interest-only payments in a 1 year term, with the goal of refinancing institutionally in a year’s time once the borrower has repaired their credit or income qualifying issues.
Private lenders are similar to traditional mortgage businesses in many ways and it’s important to know about renewal clauses, penalties, early-payout provisions and refinancing etc. These lenders are also in the business of making money on their investments and some of them borrow money themselves at a lower rate and then lend it out at a higher rate to make a profit. It’s also important to know what may happen if you default on a payment and what exactly the agreement considers to be a default.
There are many other points that need to be considered when inquiring about a private mortgage and at MortgageMeister we’ll be able to carefully explain them all to you. We have the professional experience necessary in matching potential homebuyers with private lenders and look forward to taking care of all the details and legwork for our clients. Contact us today to speak to one of our mortgage professionals.