What is a Private Mortgage and How Can It Help People in Barrie?
A private mortgage is one that is offered by an individual or a company who is not a mainstream or alternative institutional lender such as the big banks. The private lender is someone who is willing to lend money out to borrowers who have equity in their property, need financing for a short term (usually 1-3 years), and do not qualify for a mortgage by other means.
A private mortgage can be a first mortgage, that is, you have no other mortgages on your property. Or, it can be a mortgage in the second or third position, that is, you do have other mortgages on the property and they are prioritized ahead of this mortgage.
When does a Private Mortgage Make Sense For Someone in the Barrie or surrounding areas?
- You want to purchase land or maybe a property that institutional lenders won’t touch because it’s outside of their lending criteria.
- You’re interested in buying a property or a home that is in major disrepair, and you need financing to fund your renovation.
- You’ve recently been laid off or have lost your job and you need a mortgage to tide you over while you’re job hunting.
- You need to consolidate high interest debt, but due to bruised credit, you have been turned down for refinancing.
- You need to access equity in your home but the penalty to break your current mortgage is too high.
- A divorce, illness or some other life changing event has a major negative impact on your credit rating, and you need mortgage financing until you get back on your feet.
- You have credit issues such as a bankruptcy that prevents you from getting a mortgage for the full amount that you need from an institutional lender.
- You need to take out equity from your property to get you back into good standing with an existing mortgage that is in arrears, power of sale or foreclosure.
What does a Private Mortgage Cost You?
If you’re borrowing privately, there will be some costs you’ll need to cover.
First, you’ll be required to pay for a property appraisal through an appraiser that is approved by the lender. Remember, the lender needs assurance that they are lending against a property that is worth enough to ensure they are financially protected. In the Barrie and surrounding areas, you can usually expect an appraisal to cost $300-500, and you are responsible to cover the cost at the time the appraisal is done. Don’t pay for an appraisal until you have a lender who’s agreed to finance you.
Payments on a private mortgage are usually “interest only” payments, which is one of the reasons this may be a good option for someone with temporary cash flow issues, or an investor. The interest rates are typically higher than with a mortgage from other sources. The rate is set case-by-case, and is based on the overall ‘story’ of your situation. The lower your “loan to value“, the better the mortgage position (a first mortgage being better than a third mortgage), and the better your current credit situation (especially if you’ve kept your first mortgage in good standing), the better your rate is likely to be.
And finally, you, the borrower, are responsible for paying the legal fees for both yourself and for the lender.