It is the dream of many Canadians to own a home, but unfortunately for many it seems like this dream may be out of reach. Traditional mortgages can be difficult to qualify for and they may not meet the needs of everyone. In recent years, the federally imposed “stress test” has made this even more challenging for some. Fortunately, there are private investors and companies out there that are willing to offer private mortgages. And a private mortgage just might be the answer to helping you become a homeowner.
In many respects, a private mortgage is just like a traditional mortgage. It is a home loan secured by the property you are purchasing. You pay it back with interest over a set term and when the term expires, you have the option of paying off the balance of what you owe on the property or renewing your mortgage for another term.
The main difference with a private mortgage is that the lender is a private individual, investor, or company rather than a traditional lending institution such as a bank or credit union. Generally, private mortgages are considered higher risk investments than traditional mortgages and they therefore usually have a higher interest rate attached to them. Nevertheless, even with a higher interest rate, getting a private mortgage may still be a much more affordable option than putting off you home purchase to a later date when home prices are likely to be much higher.
In the future, when your financial situation has improved, you can always re-apply for a mortgage at a lower interest rate.
The most common reason why people choose private mortgages is because they cannot qualify for a traditional mortgage. This may happen for a number of reasons ranging from bad credit, to not being able to pass the stress test, to being self-employed. Private lenders are not bound by the same rules as traditional lenders, so they are able to look at the bigger picture when making their investment decisions.
But there are other reasons people choose private mortgages as well. Perhaps you need to get a mortgage approved more quickly, or for a shorter term, or for an unconventional property. Traditional lenders may be hesitant to approve you for a mortgage in these circumstances, and a private mortgage may be the answer.
Although private mortgages tend to have higher interest rates than traditional mortgages, it doesn’t mean that you still can’t get a great deal. The best way to get the best rate on a private mortgage is to work closely with your mortgage broker.
Mortgage brokers work with many different lenders, so it is easy for them to compare rates for you and help to get you the best possible deal for your situation.
In addition to working with your mortgage broker, taking steps to improve your credit (or at least to ensure it doesn’t get any worse) will also help you to get the best interest rate on a private mortgage. Make sure you are paying your bills on time, and don’t take out any other major loans before your mortgage is fully approved and in place.
If your credit is bruised or damaged, don’t worry – it may still be possible for you to get a private mortgage. Your mortgage broker will have connections to specialty lenders who work specifically for those with bad credit in order to help them become homeowners.
It is important however to be completely honest with your mortgage broker about your financial situation in order for them to give you the best help and advice possible.
While it is technically possible for you to go directly to a private lender to get a private mortgage, this is not the best course of action. Sadly, some lenders out there will use predatory practices – but when you work with a mortgage broker, your broker will make sure that you are doing business with a reputable lender.
Other advantages of working with a mortgage broker to get your private mortgage include:
Are you interested in learning more about private mortgages or making an application for one? If so, contact me today to set up and appointment.