What Is a Private Lender?
A private mortgage broker or lender (also sometimes called an alternative lender) is a person or financial entity that works independently of federally or provincially regulated financial bodies such as banks, credit unions, and trust companies. Private mortgage lenders in Ontario offer loans to borrowers who may not qualify for bank loans.
Ontario: A Thriving Province with Flexible Private Mortgage Options
Ontario is a fantastic place to call home, offering diverse cities, vibrant culture, and beautiful natural landscapes. From the dynamic metropolis of Toronto to the stunning beauty of the Great Lakes, Ontario has something for everyone. The province also boasts a robust economy, with strong employment opportunities across various industries. For those looking to purchase a home or invest in real estate, Ontario’s competitive housing market can sometimes make traditional financing options challenging to secure. That’s where private lenders come in, offering flexible mortgage solutions that cater to those who might not meet the criteria for bank loans, ensuring more opportunities for homeownership across the province.
What Are Some Reasons for Needing a Private Mortgage?
When applying for private mortgage lenders in Ontario, you must state why you need the money. Private lenders are usually quite lenient and will accept the most reasonable responses.
Some popular responses include:
- To pay off high interest credit card debt
- To pay for home repairs or renovations
- To cover living expenses after a work layoff
- To stop a power of sale or foreclosure
- To pay tuition fees for college or university
In many cases, borrowers approach private lenders for mortgages and loans to help consolidate existing debt or prevent property loss through foreclosure or power of sale proceedings. Many people juggle multiple types of debt at once. For example, as noted above, you might have a mortgage along with a significant amount of credit card debt or outstanding student loans. Since mortgage and student loans are owed to different collectors, you may have to keep track of multiple monthly debt payments. A mortgage from a private lender can be enough to pay off what remains on your mortgage and your student loans. Upon settling individual debts, you’ll have a monthly payment to your lender, simplifying your financial obligations. Many borrowers find this an easier way to manage debt.
People who cannot qualify for a low interest rate loan at a bank are the kind of clients that private lenders seek out. Our private lender network can provide mortgages to people turned down by banks. Most private lenders will offer a rate between 8% to 12%.
Fast Financing from Private Lenders
What do you do when faced with a sudden emergency expense, such as home or automotive repairs due to a flood or accident? If, like many Canadians, you lack sufficient savings to cover an expense of a few thousand dollars while maintaining regular bill and mortgage payments, the most obvious options are taking out another loan or deferring payments for your existing mortgage.
Both options have merit, but what if you need the money faster than banks can provide it?
The major banks in Ontario must follow a comprehensive and time-consuming mortgage approval process. There is no possible way to have a bank speed up its mortgage process. Aside from the above reasons, this can also be an issue for property sales requiring quick money. Private lenders can provide mortgage money much faster than banks can. A private lender can provide funding in as little as one day if needed. Our network of private lenders and private mortgage companies can lend on real estate in every city and town in Ontario. Call one of our private mortgage brokers to discuss your mortgage and get money from private lenders.
Private Lenders in Ontario Offer a Variety of Loans, Including:
Many private lenders work with mortgage brokers to connect with potential clients and borrowers. To find a mortgage when rejected by banks, book an appointment with a mortgage broker. A reputable broker clarifies loan options, eligible interest rates, and ideal lenders for your needs.
A broker can also walk you through the steps and requirements for getting approved for a loan from private mortgage lenders in Ontario and help you gather all the paperwork you’ll need.
Private lenders establish their own lending criteria, notwithstanding their lack of obligation to federal regulations on borrower eligibility.
Information on Lenders in the Ontario Real Estate Market
Situated in the southern part of Canada, Ontario shares a border with the US. Its real estate market, particularly in cities like Toronto and its surroundings, has been a focal point of political discussion due to sustained double-digit price growth over recent years. Private real estate lending is increasingly popular among residents seeking additional income opportunities. Ontario, a Canadian economic powerhouse, is highly coveted as one of the nation’s premier residential destinations.
Ontario-based private lenders specialize in mortgages and home equity loans, serving a wide range of real estate buyers.
Private lenders may work independently or as part of a mortgage syndicate or mortgage investment corporation (MIC). In the latter scenario, multiple investors pool their money, enabling them to invest in numerous mortgages simultaneously, thereby reducing risk. Private lenders, using personal capital for mortgages, might have stricter lending criteria, including borrower eligibility and mortgage terms.
How to Get the Lowest Private Mortgage Interest Rate
To get the best interest rate for a private mortgage, a homeowner must meet at least three criteria. The first and probably the most important is a low Loan-to-Value ratio (LTV). Calculate your LTV ratio by taking all existing mortgages plus all proposed mortgages and dividing by the appraisal value. A low LTV means it is a low-risk mortgage and, therefore, should get a low interest rate. Second is the income of the owners. If the homeowner can meet all their financial obligations, the lenders will be more confident that the borrower can make their payments. Third is the credit score. A high credit score means you can pay all your bills and have a low chance of missing payments.
In Canada, “good credit” usually means a score of 700 or higher (900 being the highest possible score). Scores between 550 and 700 are fair, and you can often still get a mortgage from a bank or credit union with such a score, albeit at a higher interest rate. Scores below 550 indicate poor credit. Many private lenders will offer poor credit mortgages, high interest, and short-term mortgages specifically designed for those with credit who are too poor to get a loan from a bank. However, the higher your credit score, the lower your interest rate can be.
It is important to know that while mortgage approval is mainly based on LTV, other factors can influence private lending interest rates. Before applying for a mortgage, consult a private lender or mortgage broker to gauge approval prospects with your credit rating.
Loan-to-Value Calculator
To calculate your LTV, follow the simple steps in the LTV calculator. Enter the estimated value of the home you are interested in, your requested loan amount, and the type of mortgage you want in the three text fields below, then click the button ‘Calculate Your Loan-To-Value Ratio.’ The calculator will give you an instant result.
Hard Money Loans from Private Mortgage Lenders
The term hard money lender refers to lenders that want the loan secured against hard assets such as a house or condo. Private hard money lenders operate in basically the same manner as other private lenders. They are looking for hard assets such as houses, buildings, plazas, retail stores, and other real estate. Many hard money loans in Ontario are registered as mortgage loans.
Hard money loans are usually short-term, lasting anywhere from a few months to a few years. Because these types of loans depend on the borrower’s assets rather than their financial stability, they tend to be riskier and, therefore, come with higher interest fees. Borrowers often resort to hard money loans as a last option to settle defaulted mortgages or halt a Power of Sale.
During the application process, ensure readiness to furnish all financial statements pertaining to commercial or retail buildings. Bear in mind that only the value of the house or property will be considered. Hard money lending does not tend to apply to the business value.
Real Estate Financing
Private real estate financing refers to any loans or funding acquired from a private lender.
Private financing may be the best alternative if you are trying to find financing for your house or other real estate ventures. While banks and other top lenders can offer lower interest rates, high demand, stringent lending policies and a strict pre-approval and approval structure can mean that a conventional mortgage simply doesn’t suit your needs.
Private money lenders in Toronto and the GTA can provide loans up to an LTV of 75%. Commercial real estate financing usually requires large amounts of money, and private funding can take time. Planning financially is crucial to avoid relying on emergency financing when needed. Consult your private mortgage broker to ascertain loan qualifications for starting a business or acquiring commercial property. Toronto private lenders can also provide information on local real estate markets.
Do You Need Private Mortgage Insurance?
Private mortgage insurance is a type of insurance that is designed to protect the lender in the event of mortgage default. In general, private mortgage lenders cannot get insurance on their mortgages. Since private lenders are not regulated by any major government body, there is no company willing to provide this insurance. Mortgage insurance is typically used on low down-payment new purchase mortgages, typically provided by banks.
In Canada, most mortgage insurance is provided by the Canada Housing and Mortgage Corporation (CMHC), a federally operated crown corporation that regulates mortgage demand.
The most recent set of requirements include:
- An amortization period must be 25 years or less.
- For home purchases between $500,000 and $999,999, a higher down-payment is needed. The minimum down payment must be 5% up to $500,000 and 10% for the remainder of the mortgage.
- Properties valued at over $1,000,000 cannot get mortgage default insurance.
There are two other companies that provide mortgage insurance: Genworth Financial and Canada Guaranty. These are private companies but are still tightly regulated by the government. The requirements for getting mortgage insurance with these companies are typically very similar to the requirements given by CMHC.
While private mortgages cannot be insured in case of default, there are still other insurance requirements. Most private lenders will require that the property be insured against fire damage and other natural disasters.
Private Mortgage Lender Loans
Typically, private lender loans require more than 25% equity in the property. Equity refers to the property’s value not tied up in debt. For example, if your home is valued at $1,000,000 and you have a mortgage of $750,000, you have 25% equity.
To secure approval, private lenders often demand property appraisals to determine its current market value. Residential properties usually require more than 25% equity, while commercial properties need around 35%.
Credit scores matter less to private lenders than to banks. Instead, they focus on the property’s market value and existing debts. They calculate a Loan-to-Value (LTV) ratio by dividing existing mortgages by the property’s market value. Lenders typically avoid properties with an LTV over 75%.
Private mortgage lenders in Ontario prioritize equity; a high LTV indicates greater risk. They consider their ability to recoup losses if the borrower defaults. While LTV is crucial, factors like steady income and financial responsibility can influence loan terms.
Recent FAQ Post
How do Private Money Lenders Work?
Private lenders aren’t subject to the same strict regulations as banks. Private lenders must work with a licensed mortgage broker, which FSRA regulates. Due to federal laws, banks must first and foremost look at an applicant’s financial history and situation. To secure a bank mortgage, demonstrate your ability to repay by showcasing a history of responsible debt repayment. Learn more about how private lending works.
- Introduction
- What Is a Private Lender?
- Ontario: A Thriving Province with Flexible Private Mortgage Options
- What Are Some Reasons for Needing a Private Mortgage?
- Fast Financing from Private Lenders
- Information on Lenders in the Ontario Real Estate Market
- How to Get the Lowest Private Mortgage Interest Rate
- Loan-to-Value Calculator
- Hard Money Loans from Private Mortgage Lenders
- Real Estate Financing
- Do You Need Private Mortgage Insurance?
- Private Mortgage Lender Loans