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 towards 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? Are you needing 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 is applicable when your lender has negotiated an interest-only loan which is structured exactly as it states.
The homeowner only pays the interest that the lender has assigned to the loan and not the principal or loan amount. For a loan for One Hundred Thousand dollars with an assigned six percent interest rate, the Ontario homeowner will be paying the monthly interest payments 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 it is not paid off until the end of the term of the loan that you have determined with your borrower. This type of loan is also used often by the big banks as well as private lenders, for second mortgages or Home Equity Line of Credits (HELOC’s). 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 is the shift that takes place over time during a mortgage loan as the homeowner gradually pays off the interest on the loan and shifts to paying down the principal. This term refers to the speed at which the loan is paid down. Slowly at the beginning of the loan and much faster as payments are based on the actual principal amount rather than the interest associated with the mortgage loan
In general, the standard principal plus interest loan is used primarily by the banks based on different mortgage lengths or amortization periods. An amortized loan is a type of loan that requires the borrower to make scheduled, periodic payments that are applied to both the principal and interest.
These loans are often difficult to calculate. The homeowner will pay the interest payments that have been assigned to the mortgage amount monthly plus a portion of the principal, or mortgage amount. In this mortgage arrangement, the homeowner is making interest payments as they slowly pay off the mortgage amount you loaned to them.
This loan is considered a front-loaded loan. The interest is higher at the start of the loan and decreases gradually as payments are made over the term of the loan. 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 May Turn you Away
Some Ontario homeowners have been denied a mortgage loan by the banks due to poor credit or difficulty to prove monthly income. When looking for monthly mortgage payments that may fit comfortably into a monthly home budget, private loans provide flexibility in the terms of payment as well as the types of loan options available.
Private lenders may prefer interest-only loans because the loans are generally structured as short-term loans and these lenders will be able to recoup the principal quickly while receiving interest payments during the loan.
This may also be an attractive option for Ontario homeowners that may be facing a short-term financial squeeze. There will be no need to worry about paying back the principal rather the monthly payments will represent the interest on the loan.
Interest rates associated with most private loans may be slightly higher than the bank counterparts at generally 7%-12% and fees associated with these loans tend to range between 3% to 6% of the total cost of the loan. When considering second mortgages, HELOCs, or equity home loans, the interest-only monthly payment would be likely.
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. With access to a broad network of private lenders across the province, we will be able to address your particular mortgage concerns and help determine the best mortgage arrangement to fit your lifestyle and financial goals.
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.