1. Private Mortgages The Alternative Way Of Refinancing
After the sub-prime crisis of 2007-08, banks and other lending institutes started to put mortgage applicants under
intense scrutiny. The economic crisis that engulfed all the major economies of the world was caused because banks
approved mortgage loans of those applicants who had a poor history of repaying their debts. The global markets
might have recovered somewhat, the tight guidelines on who can avail a mortgage loan are still in place. Although
the idea behind these regulations is to prevent another financial catastrophe, it has made owning a home a far-
fetched dream for many Canadians. Faced with strict requirements from banks and other conventional lending
institutions, these individuals are looking at private mortgages financiers to help them with their mortgage
refinancing needs.
Who Gives Private Mortgage Loans?
Private mortgage loans are given by an investor, or a group of investors, who are looking at a higher return on
their money. Private lending companies that ask for minimal documentation also hand out mortgage loans to
people who cannot avail the mainstream mortgage loans. Private mortgage lenders have relatively lesser
requirements to qualify for a loan, which enables a lot of people to avail them.
Why Apply for a Private Mortgage Loan?
Private mortgage loans work out for people with bad credit scores, and also for those who cannot wait for the long
time banks and other conventional lenders take to review the mortgage application. Generally, private mortgage
lenders complete the loan application process within 10 to 15 days – a stark contrast from the 60 to 90 days it
takes banks to go through the application. One of the prime reasons for this is the fact that banks and other
lenders look at factors such as the credit history of the applicant, the appraised value of the property that is to be
financed, borrower’s current financial state, etc. On the other hand, private mortgage lenders look at only the
appraised value of the property to be financed while reviewing the loan application. They use the appraised value
of the property as collateral for the loan.
What are the Drawbacks?
If getting a private mortgages loan is so easy, then why do people go through the tedious process of obtaining
one from a bank? Well, the reason for this is the fact that interest charged on a private mortgage is exorbitantly
higher than a mainstream mortgage loan. It is not uncommon for people to pay a 20% interest rate on a loan
financed through a private lender. Secondly, private mortgage lenders do not offer loans for a long term; they
usually offer loans for a term of three years.
Although private mortgage lenders do not intensely scrutinize an individual’s credit history, they look at certain
factors before they approve a loan application. Some of these are the type of property, income potential of the
property, and the exit strategy on the property – whether the property can be refinanced or not.
Due to the strict regulations on part of the banks, it can be said that private mortgage loans are here to stay. They
are a ray of hope for a lot of individuals and entrepreneurs who cannot avail conventional loans. However, you
should brace yourself for high interest rates and lower terms before applying with a private mortgage lender. As
most of these loans are carried out with private lenders, negotiation plays a very important part in determining the
rates that you get. Do some research, or take the help of a mortgage broker to get the best rates.
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