Many Canadians believe that private mortgages are really only for those with damaged credit.
They may also have pre-conceived notions that private mortgages are the last resort when you simply cannot qualify for a traditional mortgage through a bank or credit union.
The truth, however, is that private mortgages are a tool used by many Canadians to help them become homeowners when they otherwise might not have been able to. And while there may be some private lenders out there that are less than scrupulous, there are many more reputable lenders than not. And a good mortgage broker will help match you with a reputable lender and help you avoid the few bad ones that are out there.
What is a private mortgage?
A private mortgage is simply a home loan that is administered by a private company or individual instead of a traditional lender or major financial institution. Private mortgages are generally considered a bigger risk to the lender than traditional mortgages and for that reason, the interest rate is typically higher. That being said, however, the opportunity to become a homeowner may well outweigh the small difference that you might have to pay in interest.
Why might you need a private mortgage?
Commonly, people who choose private mortgages do not have the necessary credit score or history to qualify for a traditional mortgage. Private lenders do not have to adhere to the same strict criteria as federally regulated lenders, and they are able to look at other factors for qualification besides credit score. But poor credit isn’t the only reason why someone might choose a private mortgage.
Some home buyers may have more difficulty proving their income – such as new immigrants to Canada, or entrepreneurs. For these people, a private mortgage may be their best option.
Additionally, if you are looking to get a mortgage with unusual terms, if you are purchasing a non-traditional property, or if you need very quick approval, then a private mortgage may be your best bet.
Is a private mortgage right for you?
Are you still not sure if a private mortgage is a right option for you? The best way to know for sure is to sit down with an experienced mortgage broker to discuss your options. Your broker can examine your current situation and help you determine if a private mortgage is right for you. If it is, they can also help you find the right lender who will give you the best interest and terms for your situation.
And remember, you don’t have to have a private mortgage forever. You may need a private mortgage for a few years just while you repair your credit or build a credit history. After that, you may be able to qualify for a traditional mortgage so that you can lower your interest rate. Your mortgage broker can help you develop a plan for this.
If you would like to learn more about private mortgages and see if this is the right option for you, then contact me today.