A Guide to Canadian Private Mortgages

When a Canadian homeowner has difficulty qualifying for a traditional mortgage loan, a private mortgage may be one of the available options which can get them the funds necessary to purchase a home. According to Teranet, in 2015 approximately 4 to 5 percent of the overall mortgage market was attributed to private mortgage lenders. When new B-20 guidelines are implemented, this percentage may rise considerably. How can prospective buyers benefit from a private mortgage?

What is private mortgage insurance? Understand more about the private mortgage product today.

What Is a Private Mortgage?

A private mortgage is a mortgage product for homes to help borrowers achieve specific goals. This type of mortgage solution can help:

• Individuals looking for a second mortgage or investment property in Laurier Heights or elsewhere
• In the purchase of a micro-condo or mobile home
• Provide emergency funding in the case of individuals going through foreclosure or with property taxes in arrears
• Non-residents
• Self-employed borrowers with unsteady or unverifiable income
• Borrowers that may not qualify for traditional mortgage products due to inadequate credit

Borrowers should consider a private mortgage as a short-term solution for emergency lending situations or when bankers may not offer lending for certain types of property. Maya Schenk, Pacific Lending owner and managing broker shared:

"What makes interest loans appealing is that you are not required to pay down the principal of your mortgage, therefore reducing your monthly payment. Interest-only payments improve the monthly cash flow, but for obvious reasons they are not a viable long term solution."

A private mortgage is generally used for one to three years as a borrower attends to immediate needs or improves their credit score.

What are the Benefits of a Private Mortgage?

Borrowers, in particular self-employed individuals, appreciate the advantages of such a mortgage product. Some benefits include:

• Less documentation
• Flexibility as it applies to credit history
• A quick and simple process for those with equity in a property or sufficient down payment
• More weight on the down payment, the ability to make payments and the quality of the property
• Potentially more favourable rates for homes in desirable urban areas

These are some of the reasons that private loans are growing in popularity with borrowers and may provide a solution for those requiring funding quickly.

What Are the Drawbacks of a Private Mortgage?

Private mortgages are not the right solution for everyone. How much is private mortgage insurance? Private mortgages generally come with interest-only payments and higher interest rates, as private lenders do assume more risk for providing loans to those that are often not eligible for a conventional home loan. An interest rate on a private mortgage can be from 10 to 18 percent on the loan. Additional fees may also apply to this type of loan. Borrowers must cover the cost of broker fees using this type of loan. A borrower should be able to say "yes" to the following questions to actually benefit from a private loan:

• Can I change to a conventional lender soon as I expect my financial situation to change in the next year or so?
• Will I require a private loan for a relatively short amount of time?

A mortgage broker may be able to help Canadian homeowners decide on which mortgage products could best suit their immediate and long-term home ownership needs.

Get a Loan When You Need It

A private loan is a practical and short-term solution for homeowners in transitioning financial situations or who fail to meet traditional lender requirements. Understand the pros and cons of a mortgage product before assuming responsibility for paying back a specific type of loan. Talk to a Canadian mortgage broker to assess your eligibility for various mortgage products today.