When to Consider a Private Mortgage
Traditional mortgages don’t always work for everyone, sometimes choosing a private mortgage may = be the better option. Similar to traditional mortgages, private mortgages let you borrow on the equity you’ve built up in your own home, or purchase a home (if you have the required down payment). But the main difference between a traditional mortgage and a private mortgage is that a private mortgage is handled by a lender who is willing to work with borrowers who’ve had trouble securing traditional loans for various reasons.
Private mortgage lenders can be individuals or institutions who can be thought of as angel investors – they come to your rescue when regular financing options are not feasible. These lenders offer short term asset backed loans for a specific period of time. Many individuals and businesses in Canada take out mortgages from private lenders. They are great alternatives to regular financing options in many situations.
PRIVATE MORTGAGE LENDERS ARE A GOOD OPTION WHEN:
- You are trying to buy an unconventional property that a bank or another lending institution is not ready to finance.
- You need a short term loan for only a few years.
- You need quick financing and can’t afford to wait for a long approval process.
- You have unverifiable income that is proving to be a roadblock in getting a mortgage for your dream home or any other property financing.
Private lenders are usually a lot more flexible than traditional ones. If your credit could use some improvement, it is best to consider a private mortgage while you work to get your credit back on track. Utilizing the equity in your home to pay off your debts to get your credit back in good standing and help restore your bad credit history is a great use of private lending.
Private lending can be a great option for individuals who are self-employed that have trouble getting traditional mortgage financing, as they may not declare all of their income when doing their taxes.
If you’re buying a new home before selling your old one, or if you need money for a short period of time to cover you while you’re waiting for a future lump sum payout, a bridge loan might be the right choice.
Traditional lenders may hesitate when they see that you have existing debt to pay off, while most private lenders are always happy to help. Using a private mortgage to help you take advantage of the equity in your home is a great way to repay your unsecured creditors and drastically reduce your monthly payments.
A second mortgage can be a great tool for consolidating debt, funding home renovations, providing working capital, or a bridge loan. A major advantage of a second mortgage would be to avoid large breakage penalties on your first mortgage, or for those with a low-rate first mortgage but who wouldn’t qualify for such a low rate with a new first mortgage.
Although private mortgages are a great solution to many financing challenges we may face its imperative to keep in mind that they are typically best used as short term solutions as they are more expensive than traditional financing. It’s important to always discuss your “escape plan” options for the end of your private mortgage term with your mortgage broker.