When Might I Need a Private Mortgage?
Why would I need to get a private mortgage?
Are you thinking about buying a home or refinancing your existing mortgage, but just aren’t sure of whether you can pass the stress test? Have you been turned away from the bank because of your low credit score or difficult to prove income? Clover Mortgage has some good news for you! Not all borrowers have a great credit score or are able to pass the stress test with ease, but there are other options for securing a mortgage! Private mortgages are a great opportunity for borrowers who need a bad credit mortgage , who report their income in an unconventional manner, or who may need a self employed mortgage to delve into the real estate market and buy their dream home, or refinance their current property!
What is a Private Mortgage?
A private mortgage is a lending option available to potential borrowers who cannot qualify for a mortgage with traditional mortgage lenders. Traditional lenders, like banks, credit unions, and trust companies are usually referred to as A or B lenders. The better your credit and income, and the lower your debt, the more likely you are to be able to qualify for a great low mortgage rate using the traditional mortgage qualification route. However, many Canadians do not have the luxury of being accepted for a mortgage with banks or other institutional lenders. In a time of increasing property values and high levels of unemployment, alongside the stress test, more and more individuals are finding it challenging to qualify for a mortgage with a traditional lender. This is when a private mortgage comes into play.
Private mortgages allow borrowers who do not qualify at banks and other more traditional lending institutions to have a chance at their dream of owning a home, or for a mortgage refinance to help pay down debts. Private lenders tend to have different, and much more flexible, qualification criteria than traditional mortgage lenders do and are able to present borrowers with the opportunity to find a home even when their banks say no.
Private mortgages also have higher interest rates and additional lender and broker fees that come along with them as a way to compensate the lender for the increased risk that they are taking. They come with higher fees compared to traditional lenders because the broker and lender set their own fees, and where a mortgage broker will not charge a fee when obtaining a mortgage for their customers through a bank, they will charge a brokerage fee when obtaining a mortgage from a private lender. This is because banks pay mortgage brokerages a commission directly, where private lenders do not.
Finally, most private mortgages only require you to make monthly payments on the interest amount, leaving the principal untouched. While this means that the you will not be paying down your principal, your monthly mortgage payments may be lower since you are only paying the interest amount each month. This can be an ideal situation when performing a mortgage refinance with the purposes of debt consolidation using the equity a homeowner has available. These can often come in the form of a second mortgage , which are also given by private lenders.
Who Might Need To Apply For A Private Mortgage?
Private mortgages are usually a last resort for individuals who are committed to getting a mortgage but are having a hard time getting approved by a traditional lender. If your low credit score or difficulty to prove income are getting in the way of your dream of homeownership, a private mortgage could be a great option for you. These are also great solutions for people who have been declined by their banks at the last minute and need a last-minute quick closing emergency mortgage solution.
Private mortgages can be ideal for:
- Self-employed individuals who might have difficulty proving their income and who are not able to qualify under special self employed mortgage options through some of the institutional lenders our brokerage, Clover Mortgage works with
- Individuals with poor credit or no credit history
- Individuals who have experienced bankruptcy or insolvency, or who have been in a recent consumer proposal
- Individuals who own homes that cannot be refinanced
- Individuals that require emergency funding or a quick closing mortgage loan. Great as a bridge loan option for those who have bought a house but have not yet sold their previous home
For some, private mortgages can be the only way to secure a mortgage. Since they can often be expensive, they should be used more as a short-term option rather than long-term. If you feel that a private mortgage might be the right option, or the only option for you, we always recommend working through the process with a trusted mortgage broker.
The experienced and hardworking mortgage brokers at Clover Mortgage will work diligently to find you a private mortgage with the best terms and conditions available to you. They will advise you on the best options and make sure that you stay comfortable and informed throughout your whole mortgage application process.
Call us today at 416-674-6222 or email us at info@clovermortgage.ca to learn more about private mortgages and speak with a private mortgage specialist about your homeownership journey!
