Before you can understand how private lenders break down the fees for the services they provide, it’s good to have an overview. These individuals and/or financial companies are also called alternative lenders. They can help you finance or sell quickly.
One of the big differences between them and more traditional places like banks and credit unions is how they work. Private lenders tend to operate independently from more regulated financial institutions like trust companies, credit unions and banks.
Comparing the two options means digging a little deeper and realizing that a bank is more regulated than a private lender.
There’s more. You’re more than likely to pay a higher interest rate with an alternative lender than with the more traditional one. The reason is simple. These private lenders are taking on a bigger risk. Applicants that they evaluate often have damaged credit scores. Some are even facing evictions through a power of sale or foreclosure.
Understanding the different types of loans and mortgages that are available can help you to make the right decision
What Types of Products Do Private Lenders Offer?
Many of these alternative lenders work with mortgage brokers to connect applicants to the money they need. Booking a consultation to speak with an experienced licensed mortgage broker is a good first step. Especially if you’re looking to finance or sell quickly.
Once the process works its way through to the private lender, you’ll have several different products to choose from. The options include:
- Hard Money Loans. Basically, this is an American term for private lending in Canada. The application process is more straightforward with these alternative hard money loans. However, applicants should expect to pay higher interest rates.
- Home Equity Loans. This is a second mortgage that’s calculated based on the amount of equity you have in your home. The money gets paid out in a lump sum, and your house is used as collateral. With all the paperwork, you can get the money fast.
- Bad Credit Mortgages. For many homeowners, the last several years have been volatile. Some struggled through the pandemic only to find inflation causing higher interest rates and strained budgets. Unfortunately, the credit rating for these individuals and others can suffer. Generally, Equifax sees credit scores ranging from 580 to 620 as subprime. Lower scores mean a more difficult time getting approved with a traditional lender. However, private lenders focus on existing equity and the LTV ratio. A bad credit score plays a lesser role in getting approval.
- Second Mortgages. Private lenders focus on metrics like equity rather than more traditional benchmarks. Property owners with at least 25% of the equity in their own property stand a chance of getting approved for a second mortgage. However, this is the upper limit.
- Second mortgages can infuse money for renovations or repairs. You can also use them as a capital boost for business.
- First Mortgage. A private mortgage usually needs an appraisal or home inspection. However, the whole process is easy to qualify for, and it has a shorter approval process.
Understanding the different products available helps you to have a good idea of your options. Interested applicants understandably want to know the rates they can expect to get from private lenders and financing for a property.
Here’s What Private Lenders Charge
In part, because they are regulated in a different way from more traditional lenders, private mortgage rates can vary. However, there are a few ballpark figures that can be used to get an idea. This can help if you need to sell a condo fast.
For example, on a first mortgage without another loan already in place, you can expect to pay anywhere from 8% to 15% interest for a condo. The second mortgage rate, when you already have a loan from a bank, can range from 10% to 15% or more. The rates are higher for the same condo, but applicants need to remember the process is more streamlined and user friendly
Here are a few other things that you’ll need to know to get the money fast.
Private lenders usually loan out money on a short-term basis. This can range anywhere from six months to two years. Some private lenders opt to charge what they call Lenders Fees on a cottage.
Lender and Broker Fees
These lender fees usually represent a portion of the loan. Typically, these are usually 2% to 4% of the entire cost of the loan itself. These help a private mortgage lender with the costs of setting up and discharging the product. The lender fee may be higher for a variety of reasons, including:
- Legal or administrative issues to overcome
- High LTV is requested
- Rural property
- Loan is given rush priority
- Custom terms or conditions are added to the mortgage
There’s also a mortgage broker fee that needs to be added to the total. These are roughly equal to the lender fee. This means that the total for lender and broker fees will usually range from 4% to 8%. The money goes to pay the administrative staff and agent as well as the mortgage broker. This is the team that’s involved in arranging the product.
Administrative and Other Fees
There are a number of costs involved in putting together a private mortgage. For example, lenders need to pay the people who do the administrative work by drafting paperwork and putting together the property data. They need to pay employees and put some money aside for government agencies. This fee usually runs somewhere between $300 and $650 dollars.
Following are a few of the other costs you might incur with the private mortgage.
- The mortgage termination fee comes at the end of the term of the loan. It is usually three months’ worth of interest payments and covers related costs.
- Like a more traditional mortgage, there are legal fees that need to be paid out. Depending on how complicated the mortgages these could run anywhere between $1000-$3000 dollars.
- There is also an appraisal fee to consider. The company performing this task needs to be an AACI or CRA accredited by The Appraisal Institute of Canada. The money often totals between $300-$500.
Deciding on a private mortgage or a product from a more traditional institution means taking a look at several metrics and financial pictures. If you decide to go with the private mortgage, the criteria are more flexible. That works if you’re looking to sell a cottage fast.
It includes the loan-to-value ratio (LTV) of your existing property. Private lenders will generally go as high as 75% of the LTV value when they are deciding on the amount of the loan. Say the property is worth $1 million. Under the current guidelines, a private lender will provide a mortgage for up to $750,000.
Other criteria include the condition of the property and the local market demand.
Remember Mortgage Broker Store supplies private mortgages and buys houses for cash in the GTA. There’s no real estate agent to deal with and no commission to pay with us. We buy houses for cash.
Mortgage Broker Store supplies no obligation offers as quickly as within 24 hours. We are one of the industry leading companies that buy houses for cash. We are here if you need to sell a home fast.