To be frank, private mortgages are the last alternative for most people. Despite this fact, signs show that more Canadians are scrambling for these types of mortgages, at least as a short-term solution. According to mortgage brokers, the recent interest is mainly coming from the self-employed who are looking for means to finance their properties. What has informed this recent surge?
This explains the popularity
For obvious reasons, mainstream lenders in Canada are wary of the following people.
- Those who need bridge financing;
- Those with poor credit;
- Investors in high-risk properties.
Because A-lenders have tight lending guidelines, B-lenders have become the best alternative for these “risky” borrowers.
A more interesting dynamic in the increased affinity to private lenders is the housing boom in Canada. The Teranet-National Bank estimates that buyers are paying as much as 36 percent higher for a house as compared to six years ago. Unfortunately, conventional lenders have become more conservative over the same period.
What are the benefits of using private lenders?
One of the appealing things about private mortgages in Canada is the ease of qualification. Unlike traditional mortgages, private mortgages do not concentrate on debt ratio and credit ratio. As long as you can prove that your project will be churning out profit within a couple of months, your credit is a non-issue.
Getting a private mortgage approved in Canada is amazingly fast. Once your property qualifies for the loan, you can expect to get the funds within weeks or even days.
I know you are expecting this! Yes, private mortgages can have a negative side.
The Downside to Private Mortgages
Unfortunately, this segment of the market is poorly regulated; there are no clear guidelines. This means that the lender can charge extremely high interest rates. If say the normal interest rate is between 7% and 12%, you can expect a rate of up to 25% for private mortgage. This is a huge financial load for the borrower.
One of the concerns of private mortgages is the tendency of private lenders to have conflicting terms and conditions. For example, they seem to be barely concerned about your financial history, but wait until you default the loan! To save yourself of worry, check ourt mortgage payment calculator.
The government has tried to address the concerns by assessing the market. Probably, once market level statistics are available, the uncertainty and high interest rates beleaguering this industry will finally be solved.
Should you apply for a private mortgage?
If you are self-employed or just going through a rough financial situation, banks or traditional lenders in Canada may not be ready to offer you a mortgage. This is the point where private mortgages come in. Suddenly, closing that lucrative real estate deal and avoiding the bureaucracies associated with traditional mortgages will become a reality. If you find a private mortgage is your best option, discuss the best steps with a reliable and experienced mortgage broker.