What you need to know about private mortgages:
1. Lenders: Private mortgages are typically provided by private lenders, including individuals, private investment groups, or companies. They might be more flexible compared to traditional financial institutions.
2. Eligibility: Private mortgages are often easier to obtain for those with poor credit, self-employed individuals, or for properties that are harder to finance through conventional banks (e.g., non-conforming properties).
3. Interest Rates: The interest rates for private mortgages are typically higher than those offered by banks. This reflects the increased risk the private lender is taking on by lending to individuals who may not qualify for traditional mortgages.
4. Term Length: The terms of private mortgages are often shorter, typically ranging from 1 to 3 years. After that period, the borrower might need to refinance or pay off the mortgage in full.
5. Down Payment: Private lenders may require a larger down payment compared to conventional mortgages, often ranging from 20% to 35%, depending on the property and borrower’s financial situation.
6. Secured by Property: Like traditional mortgages, a private mortgage is secured by the property itself. If the borrower defaults, the lender can foreclose on the property to recover the loan amount.
7. Flexibility: Private mortgages can offer more flexible terms, which is appealing for borrowers who may need unique arrangements, such as interest-only payments for a period of time.
8. Brokerage Fees: Private mortgages often involve brokers, who facilitate the deal between the borrower and the lender. There may be fees involved for the brokerage services.
9. Hard Money Loans: Private mortgages can sometimes be referred to as "hard money loans" in Canada. These are short-term, high-interest loans used primarily for real estate transactions.
How to Get a Private Mortgage:
1. Evaluate Your Needs: Determine why you need a private mortgage (e.g., poor credit, unconventional property) and how much you need to borrow.
2. Find a Lender: You can find private lenders through mortgage brokers, online platforms, or direct referrals from individuals who have used private lending services.
3. Loan Application: The application process will generally involve providing personal and financial details, including your credit report (if applicable), property details, and proof of income or assets.
4. Offer Terms: The lender will make an offer based on the property value, your financial situation, and risk factors. Be sure to compare multiple offers to get the best terms available.
5. Close the Deal: If you agree to the terms, you’ll sign the mortgage agreement, and the funds will be disbursed, often for the purpose of purchasing a home or refinancing existing debt.
