Does Getting A Private Mortgage ever make Sense?

Getting a mortgage can be a nerve-racking, especially in a condition where there are high home prices and a tiny rental market. I saw an article which talks about young people or young group of people who manage to buy a home. There are some article talks about considering a mortgage loan from a private lenders and how the private mortgage in Canada keeps growing.

As I was trying to prepare for my taxes earlier this year, so I talk to my accountant and sent an email to my mortgage broker.

 I am a self-employed and I thought that my mortgage was up for renewal. I was pre- occupied in making sure to pass the stress test. Turns out my mortgage renews next year. I used to be so stressed that I am planning beforehand. Ask the questions below:

What’s a private mortgage?

How can I be qualified?

We will be putting some colors on a dark corner of the market that has been pulling you in the wake of federally mandated stress tests for uninsured loans. You might ask yourself could be a private mortgage right for you? What interest rates will you pay and what other ways you can avoid predatory lenders when try to achieve your goals for your home ownership dreams.

What is a private mortgage?

A private mortgage is a transaction between a borrower and a mortgage lender for the purpose of availing a property or house. Ngoc (Nalie) Nguyen, a mortgage broker with Dash Mortgage in Calgary, says that it’s an option when potential borrowers don’t qualify for a mortgage with A or B lenders (most banks and credit unions constitute this designation). “The stress test has made it harder to get a mortgage from a conventional lender,” she says. Dash Mortgage offers a private mortgage option and Nguyen says that the corporate has seen an uptick within the number of individuals who are applying for it.

“Anyone who’s willing to lend the money and put their name on the deed is considered a private lender”

Private mortgages are a high risk mortgage compared to conventional mortgages. The interest rates are usually higher and they may require a lot of documents. Current rates with traditional lenders remain below 5%, but private mortgage rates can go up to 20%. Fees can be higher as well, as it’s an unregulated industry, therefore the broker and the lender can set their fees. Amortization is often longer. Traditional terms remain between one and five years but private ones can last for decades, up to 35 years. Lastly, in a private mortgage, you simply pay the interest, often leaving the principal untouched.

Who might consider a private mortgage?

Anyone may be a private lender. Yes, that’s correct. Anyone who is willing to take a risk to lend a money and put their name on the deed can be considered as a private lender. They are considered as high risk mortgage lenders in Ontario or a private mortgage broker.

They are not really concern about your credit score or if you had a bad credit score. They particularly focused on checking if you can pay back the loan.  This type of loan is way higher than the market value and the value of your home.

  • Those who have a bruised credit or bankruptcy on their record.
  • Emergency funding for paying hospital bills or school tuition fees.
  • Self-employed, retired employees or people who do not have a regular and steady income.
  • Small homes that can’t be refinanced. This might include investment properties or tiny homes.

How to treat a private mortgage

Private mortgage has a broker fee starts at 5%, however Nguyen says she’s heard on fees much higher, adding up to thousands of dollars. So if you are going to get a private mortgage, try to save up first and wait for a year, or borrow from someone you know. “It’s a short-term, not long-term solution,” says Nguyen. “Read the fine print on the contract. Some brokers may take advantage of their clients and charge high fees.” below are the things that you need to do before getting a private mortgage:

  • Read all fine print. Make sure to understand terms and conditions.
  • Work with your trusted real estate broker.
  • Work with your financial Advisor to make sure you can afford a private mortgage.
  • Create a financial goals to pay off the private mortgage.

Once you have decided to utilize private mortgage, then you may want to treat this as your stepping stone for building your credit so you may have the opportunity to qualify for a traditional mortgage. And make sure to read the entire fine print and look at the overall cost. No one wants to end up owning more than the house is worth.

Lastly, talk to a professional like us we can help you decide and look for a home suitable for your budget. Email us at [email protected] or call us +1 416 8250 142.

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