Canadians who have difficulties qualifying for a bank mortgage have an option of turning to private lenders. Meanwhile, not all mortgage seekers are aware of how private mortgages differ from traditional mortgage loans and are not sure what to expect when speaking to the private lender or the mortgage broker.
Indeed, given the new CMHC rules for mortgaging, tightened mortgage stress requirements, and rising prices for real estate, many Canadians turn to private mortgages every so often. Here is more on the benefits of private mortgages, the factors you should consider before applying, and other most common questions about private mortgage loans.
How Do Private Mortgages Differ from Conventional Mortgage Loans?
Private mortgages are different from conventional loans in many aspects. While private loans have their own set of pros and cons, they can be the only available option for those with bad credit history. Private mortgages also work best for those borrowers who want more flexibility compared to lending from banks.
Although qualifying for a private mortgage is much easier even for those with a lower credit score, they also have their downside. Typically, a private mortgage comes with a higher mortgage rate, additional fees, larger down payments, and a shorter loan period. Still, as private loans can be the only available solution under the circumstances, they are definitely worth considering, especially given all the benefits of working with private lenders.
What Are the Benefits of Private Mortgages?
The benefits of private mortgages often outweigh their downsides. Here is why private mortgages have become increasingly popular with many Canadians:
- No minimum income requirements. Unlike banks, private mortgage lenders consider the value of the mortgaged property as much more important than your income.
- No minimum credit score requirements. Private mortgages are the only solution for those with lower credit scores or individuals who have not yet been able to build their credit history.
- Shorter approval period. With private lenders, you can expect approval anywhere between several hours to 1-2 days.
- Easier qualifying. Private lenders require much less red tape than banks, requesting only the necessary information without extraneous documentation and due diligence.
- Available for properties in need of renovation. While most banks are reluctant to provide loans to a property that requires a lot of renovation, securing such a mortgage is much easier with private lenders.
Are Private Mortgage Terms More Flexible?
Speaking about mortgage terms, private mortgages tend to be much more flexible than traditional loans. Unlike banks, most private mortgage lenders are open to negotiating the collateral, term, interest rate, amount of prepayment, fees, payment type, and other mortgage terms.
Also, most private mortgages are interest-rate only and do not require repayment of principal. Although on the downside, the mortgage principal will remain unchanged, such an arrangement allows lenders to optimize their cash flow and improve their credit score for the next mortgage.
What Factors Should You Consider Before Applying for a Private Mortgage Loan?
There are many factors to consider when applying for a private mortgage, in addition to paying a higher interest rate and a number of additional fees, including legal fees, appraisal fees, and loan processing fees.
The first thing to bear in mind is that private lenders ask for a higher down payment. In most cases, the down payment for a private mortgage is no less than 15% and can be even higher. Another essential difference of private mortgages is that most of them are short-term, not exceeding 1-3 years.
Although private mortgages tend to be more expensive and take a larger down payment, in many situations, they are the only viable solution for many Canadians looking for a new loan. Meanwhile, involving an experienced mortgage broker can help you account for all the factors before applying and identifying the best possible terms in your particular case.
Get Help from Professional Mortgage Brokers at Axiom Mortgage Solutions
Those considering applying for a private mortgage can leverage the experience and knowledge of our professional team at Axiom Mortgage Solutions. Our mortgage experts are ready to help take the guesswork out of your mortgage process and get financing at lower rates. Contact our mortgage brokers by phone or email for a free consultation on how we can help with your private mortgage loan today.