What is a Private Mortgage?
For those having trouble qualifying for a traditional mortgage, other solutions are still available, one of which is a private mortgage.
And with increasingly stricter mortgage regulations and qualification requirements being introduced by the government, they’re growing in popularity. Whether you have bad credit or want to consolidate your debt, Canada West Mortgage has a network of private mortgage lenders to give you alternative mortgage lending options.
Chances are the value of your home has increased since you bought it. A Private Mortgage can get you access to money based on the increased market value.
Private lending accounted for approximately 4-5% of Canada’s overall mortgage market in 2015, according to data from Teranet. Anecdotally today’s number is higher and growing fast, and is set to grow even faster now that B-20 guidelines are implemented.
Even if your credit is challenged and on the road to recovery, we look at residential detached homes, condos, mobile homes on owned land, and raw land acreages. Commercial properties as well – We will consider properties up to 85% loan-to-value in larger urban areas, and reduced LTV`s in smaller, rural areas.
Private mortgages are commonly used in some of the following cases:
- Borrowers with inadequate credit to qualify for a traditional bank mortgage
- Property/income taxes in arrears
- For second mortgages/investment properties
- Arrears on current mortgage
- Prior Bankruptcy
- Prior Foreclosure
- Self-Employed, but haven`t been for long
- Self-Employed with credit issues
- Credit issues in general – Accounts in collections
- No established credit at all!
- Income taxes or Property taxes owing
- Too much credit card debt outstanding
While traditional bank mortgages are qualified primarily on the borrower’s financial standing and his or her ability to service the debt, private lenders place more weight on the quality of the property itself, in addition to the down payment and the client’s ability to repay to loan.
What makes interest only loans appealing is that you are not required to pay down the principal of your mortgage, therefore reducing your monthly payment. Interest-only payments improve the monthly cash flow, but for obvious reasons they may not a viable long term solution.
This is why private mortgages are meant to be short-term solutions—typically one to three years—to help borrowers achieve their goals while they improve their credit, or for emergency lending situations.
In terms of the key benefits of a private mortgage, a big one is the need for less documentation as part of the approval process, which he says can be useful for self-employed applicants who can have difficulty proving their income. Private lenders are also much more flexible when it comes to your credit history – As long as you have sufficient down payment or equity in your property, private mortgages are relatively quick and simple to obtain.
Because properties in more marketable urban areas carry less risk for the lender in the event of foreclosure, they can offer slightly more favourable rates and go up to a higher loan-to-value compared to properties in rural areas or undesirable neighbourhoods.