How to get a Private Mortgage


In lieu of banks, non-traditional lenders, such as private individuals or mortgage investment companies, may offer private mortgage financing. A small number of private mortgage lenders also provide interest-only loans, despite the fact that the great majority offer just one-year mortgages. Those who are ineligible for a traditional mortgage owing to low income or bad credit may be eligible for a private mortgage. They may also be used by those in pursuit of more flexible financing options, such as shorter-term investments or debt consolidation. The table below displays the mortgage interest rates charged by Canadian private lenders.

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Typically, first mortgage rates are lower than second mortgage rates. The first mortgage, also known as a first lien or simply the first lien, is the debt that must be repaid before other commitments in the event of a default. In addition, as the first mortgage lender in line for repayment, the first mortgage lender has a greater chance of recovering the loaned funds in the event of foreclosure. Prior to the second mortgage lender receiving complete payment, the first mortgage lender will be repaid in full. Due to the chance of recovering just a small portion of any lost funds, it is important to negotiate a second mortgage with extreme care. The additional risk associated with second mortgages is reflected in their higher interest rates.

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If your loan-to-value (LTV) ratio is high, the interest rate on your private mortgage may be higher and your financing options may be restricted. Loan-to-value is the ratio of the entire mortgage loan amount to the property’s market value (LTV). As a mortgage is a secured loan, you must use your house as collateral to obtain money from your mortgage lender. If you default on your mortgage, the profits from the sale of your home will be used to pay off your arrears. A high LTV ratio relative to the property’s worth implies that your debt is substantial, whilst a low LTV ratio suggests that your debt is manageable. High loan-to-value (LTV) ratios make obtaining a mortgage lender more challenging. Mortgage interest rates will be greater when the loan-to-value ratio (LTV) is high, and they may be lower when it is low.

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If your LTV ratio is greater than 100%, you owe more on your mortgage than the property is worth. This is known as being “underwater” on a mortgage, since it signifies that the property’s value cannot sustain the second mortgage. Private lenders are less inclined to grant credit to borrowers with a high loan-to-value (LTV) ratio since private mortgages are riskier investments than conventional mortgages. If your LTV ratio is very high, your lender may not be able to collect the whole loan amount. As your LTV ratio approaches 75%, you may have fewer private mortgage alternatives.

Private mortgage lenders charge an average origination cost of 2%. This fee compensates the private lender for overseeing mortgage application procedures and finding private investors. If your mortgage is riskier than usual, such as if your LTV ratio is high, your lender will likely impose a higher interest rate. Since it might be hard to find investors who are willing to pay for your mortgage, your lender might need a higher interest rate.

In the majority of provinces, private mortgage lenders are prohibited from advertising directly to the general public. These lenders need licensed mortgage brokers to acquire customers. Mortgage brokers can charge their customers a fee to compensate them for the time and effort they invest in connecting them with private lenders. The broker’s charge and the lender’s fee for a private mortgage are often the same. If the cost of the private lender is 2%, you may also anticipate a broker fee of around 2%.

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