Are you looking to get a private mortgage in Toronto? Are you uncertain about private mortgages and wondering what, exactly, they are? What’s even more confusing for homeowners and homebuyers at times – what is a private lending institution; and where can you find them?
A private mortgage, at its simplest, is a first or second mortgage that is provided by a private lender. A private lender, at their simplest, is any person or company that’s willing to lend money to be used for private mortgages. Private lenders can be anyone from insurance companies, investments trusts, private investors and lending groups, and private corporations. Many people think that major banks and lending institutions cannot be a private lender, but that is not the case. Many banks in Canada, even major banks, have their own arms and departments of private lending.
Homeowners and homebuyers often seek the services of a private lender when they need high-ratio mortgages or home refinancing due to bad credit. Construction loans and investment property mortgages are often obtained through the services of a private lender; as well as second mortgage products such as home equity loans and HELOCs.
So now you know what a private mortgage is, and how private lenders are simply those who supply the mortgages. But where can you find them? Private lenders don’t advertise their services nearly as much as the major banks and other lending companies do. It’s because of this that seeking the services of a mortgage broker is usually advised, as brokers have a vast network of private lenders willing to offer these types of loans.
It’s of utmost importance that anyone thinking about obtaining a private mortgage knows that they must have a certain amount of equity. And while that amount of equity differs from one lender to another, it will almost 100 per cent of the time be a lot. Those who are looking to borrow from a private lender almost always need at least 35 per cent equity. For homeowners, this means that they must hold at least 35 per cent of the equity in their home; and for homebuyers, it means having a great deal saved up for a down payment.
Private mortgages also nearly always come with a higher rate of interest. Because the private lending is neither regulated or protected by the banking supervisory authorities, they are taking on a higher level of risk. In order to combat that higher risk, private lending institutions charge a higher interest rate.
