It can be a little confusing when contemplating the different types of secured mortgage loans that Ontario lenders can provide. It can also be a little intimidating when determining which lenders may be suitable when seeking a secured mortgage. Generally, lenders such as banks and credit unions will be looking for near-perfect credit, full-time salaried homeowners, and considerable assets to use as collateral toward a secured mortgage.
Loan options can include principal mortgage loans, second mortgages, home renovation loans, home equity loans, Home Equity Lines of Credit (HELOCs), and even third mortgages or bridge financing. With each of these loan types, the monthly mortgage payments will vary depending on how the loan is structured.
Questions that lenders are asking include: Is the mortgage loan short-term or long-term? How much are you borrowing against your home? What degree of equity is built in your home? How exemplary is your credit score? What sources of income are available to you, and what are your financial needs? Are you facing an imminent power of sale and need to cover mortgage arrears while enabling you to comfortably cover future mortgage payments? Do you need short-term funds to renovate your home to increase future resale value?
What Is an Interest-Only Payment?
Depending on your specific needs there are two types of interest arrangements that can be negotiated when it comes to paying off your mortgage loan. The first option open to Ontario homeowners is an interest-only payment. This monthly mortgage payment applies when your lender has negotiated an interest-only loan, structured exactly as its name suggests.
The homeowner pays only the interest assigned to the loan by the lender, not the principal amount. For a loan of $100,000 with an assigned six percent interest rate, the Ontario homeowner will be paying the monthly interest only on that amount. They will not be paying off any of the One Hundred Thousand which represents the principal amount.
What happens to the actual loan amount? Well, as you probably guessed, the loan isn’t paid off until the end of the agreed term with your borrower. This type of loan is also often used by the big banks, as well as private lenders, for second mortgages or Home Equity Lines of Credit (HELOCs). The house is used as collateral in these mortgage arrangements. The Loan-To-Value (LTV) is calculated based on the appraised value of the property and determining existing equity in the property.
What Is Mortgage Amortization?
Simply put, this describes the transition over time in a mortgage where homeowners start by paying off interest and gradually shift to paying down the principal. This term refers to the speed at which the loan is paid down. The repayment of the loan starts slowly at the beginning and accelerates as payments are applied to the principal amount. Many homeowners are wondering how to calculate their mortgage payments.
Generally, banks use standard principal plus interest loans, varying based on mortgage lengths or amortization periods. An amortized loan requires borrowers to make scheduled payments that cover both principal and interest over time.
These loans are often difficult to calculate. The homeowner will make monthly interest payments on the mortgage amount, along with a portion going toward the principal. In this mortgage arrangement, the homeowner makes interest payments while gradually paying off the loan amount.
This loan is considered a front-loaded loan. The interest starts higher at the beginning of the loan and decreases gradually as payments are made over time. Once more of the principal is paid off, the interest earned on the loan is lessened also. The term associated with these mortgage loans tends to be long-term (20-30 years).
Private Mortgage Loans: Short-Term Financing When Banks Decline
Some Ontario homeowners have been denied mortgage loans by banks due to poor credit or challenges in proving monthly income. Private loans offer flexibility in monthly mortgage payments that can comfortably fit into a home budget.
Private lenders may prefer interest-only loans for their short-term structure, allowing them to recoup the principal quickly with ongoing interest payments.
This may also be an attractive option for Ontario homeowners who may be facing a short-term financial squeeze. You won’t need to worry about paying back the principal; instead, monthly payments cover the loan’s interest.
Interest rates for most private loans are typically 8%-12%, slightly higher than bank rates, with fees ranging from 3% – 6% of total loan costs. When considering second mortgages, HELOCs, or equity home loans, the interest-only monthly payment would be likely.
Mortgage Broker Store Solutions
Mortgage Broker Store can help you look at the different types of private mortgage loans available and discuss further the type of monthly payment that may work best for your financial needs. We have access to a wide network of private lenders in the province to address your mortgage needs effectively.
To calculate your monthly mortgage payments, refer to our mortgage tool. By inputting the numbers in our easy-to-use mortgage calculator, you will have a very good idea of the payments that you could be facing when looking at different mortgage loan options. Email ron@mortgagebrokerstore.com or call 416-499-2122.
