What is a Private Mortgage? Most people, when they think about mortgages immediately think of the traditional mortgages that one might get from a bank or credit union. But did you know that more and more, private mortgages are playing a bigger role for Canadian homeowners. Yes, it is true and our team at Brampton Mortgage Broker has put together this brief article to help you out with giving you a brief overview of what is a Private Mortgage and what you need to know.
What is a private mortgage?
Just like a traditional mortgage, a private mortgage is a home loan – since most Canadians cannot afford to buy a new home with just cash, they will need some form of home loan. This is where a private mortgage can come into play to help with obtaining a home loan. The main difference between a traditional mortgage and a private mortgage is that in the case of a private mortgage, the lender is not a traditional financial institution but rather a private individual(s) or company (Corporation).
Oftentimes private mortgages are short-term, and the payments can be interest only payment – although this doesn’t always need to be the case. Usually, they also have higher interest rates than traditional mortgages since they are generally considered by lenders to be riskier investments than traditional mortgages.
Who should get a private mortgage?
For a long time, private mortgages have been considered to be a product for those with damaged credit. But that is not the case now, and more and more Canadians are turning to these types of mortgage financing options to finance their homes. So if you couldn’t get a mortgage through the bank, then looking at an alternate financing solution instead just makes sense.
And while it is true, that a private mortgage can be a good option for those with bad credit, there are other reasons why you might wish to consider this type of mortgage over a traditional one.
Reasons to consider a private mortgage include, here are four reason:
- Bad credit – private lenders are usually much more willing to look at factors other than credit score in determining your eligibility.
- Self-employed – If you are an entrepreneur, you probably have a lot of tax deductions which can make it difficult for you to prove your income on paper. As a result, you may be more likely to get turned down for a traditional mortgage so a private mortgage may be a better option for you.
- You need to get a mortgage fast – Applying for a traditional mortgage can be a bit of a process, so what do you do when your dream home comes up for sale in a hot market? Getting a private mortgage may be your best chance of keeping that home from slipping through your fingers.
- You’re looking to purchase a non-traditional property – Traditional lenders aren’t always keen on approving mortgages on non-traditional properties. So, if you’re looking to buy something out of the ordinary such as a tiny house, you might want to consider a private mortgage.
Should I get a private mortgage now or wait until I qualify for a traditional mortgage?
Some people think that because private mortgages tend to come with higher interest rates than traditional mortgages, that they should wait until they get their financial situation in order so that they can qualify for a traditional mortgage instead. Although this is not always the case, as a private mortgage can act as steppingstone to being able to refinance your mortgage down the road to a traditional lender. But thinking of waiting to get a mortgage can backfire on you if you think only getting a mortgage from traditional lender is the way to go and if you don’t qualify that you should wait it out.
Here is the reason why that this is wrong way to be thinking along those line, due to the way home prices have been going up over the last several years, it seems like the prices of homes are never going to come down. And if you were to wait to go with a traditional mortgage lender then whatever you might save in interest on the mortgage rate, you will surely pay for more than pay in the increased price of a new home.
So basically, this means if you were to wait, then you can see yourself being priced out of the market. It is very important to know that buying a home when you have financing options available to you to do so is always the best option rather than waiting to buy. And becoming a homeowner now, means that you can immediately start to accumulate equity in your home, so there is no need to wait if you don’t qualify with a traditional mortgage lender, you can always look at alternate financing options for your home.
Contact me today!
If you would like to learn more about private mortgages and whether one would be right for you, contact our team at Brampton Mortgage Broker today to schedule an appointment.