Helping your children receive a quality education that provides lifelong skills and fulfillment is a gift many parents wish to provide. Unfortunately, your child’s education is an incredibly expensive dream, one that many necessitate working with a private mortgage lender to help pay for. Education in Ontario is a huge expense for families, with over 20 different degrees costing over $15,000 per year.
The average yearly tuition of post-secondary schooling in Ontario costs $9,000. With most students needing 4 years to complete their education, families need to find a way to get $36,000 for each child’s education. The average cost of private elementary school tuition in Toronto is $17,000 to $26,000, and some boarding schools can exceed that amount by tens of thousands.
Even in a boarding school like Upper Canada College where nearly 20% of the students receive an average total of $15,000 in financial aid annually, the $66,000 to $72,000 yearly tuition means that even they need to pay upwards of tens of thousands of dollars out-of-pocket. The Ontario Student Assistance Program (OSAP) will only provide a maximum of $210 per week for private school students, which leaves a considerable amount of slack for families to pick up.
The expense families must pay for their children to attend university or college can be significant, many will need to save up for years in order to pay, and some may still not have enough to do so. This should not stop them, they have options.
If someone doesn’t have enough money to pay for their children’s education, they can use the equity in their home to get the money they need to fund it. Keep reading to learn how.
Using Private Loans to Pay for Children’s Education
While advanced education is very expensive in Ontario, it doesn’t mean that lower-income and middle-class families shouldn’t pursue these opportunities. They have options. They can get private loans to pay for their children’s education.
Private lenders are individuals and businesses that provide loans to borrowers. Unlike banks, credit unions and other financial institutions they are not restricted by internal rules and regulations that set a high financial bar for approving loans. These rules that most financial institutions follow disqualify most borrowers from getting financing. But they can get the funds they need from private lenders.
For many private lenders, as long as borrowers show that they can make their monthly payments, they could get private loans approved. Homeowners can use the equity they have accrued in their homes to get the money needed to pay for their children’s education. Private home equity loans come with lower interest rates than other kinds of private loans, which can make them particularly advantageous for families who need the funds. Private lenders can provide home equity loans, either as a mortgage or a home equity line of credit (HELOC) as long as borrowers have more than 30% equity in their home.
Private loans can be used for a wide range of uses including debt consolidation, buying a home, making investments and paying tuition. Private lenders can provide a source of funds that families can turn to when they need financial aid to help support their children through their academic studies or training.
Pros and Cons of Using Private Loans for Education
Pros
- An alternative source of funding when other sources run out
- Low-interest rates for those with good credit scores
- Can be refinanced for a lower interest rate in the future
- Offers fixed and variable-rate loans
- Higher borrowing limits than OSAP
- Can be accessed by students who have lost financial aid due to a lack of academic progress
- Available to international students (OSAP loans are not)
- Interest payments may be tax-deductible
- Borrowers have more control over their choice of lending provider
Cons
- Higher interest rates than OSAP
- No payment deferral
- Private mortgages may charge lender and broker fees worth 3% to 6% of the total loan value when the mortgage is set up.
- Credit check performed
- Having a low credit score is penalized through higher interest rates
- Most private loans will require a co-signer with a good credit score
- Less flexible repayment terms
Refinancing Private Mortgage Loans
As you make payments on your private loan, your credit score will increase. If you used home equity to get a private mortgage loan and your credit score has improved enough, you could refinance your private mortgage.
Refinancing is the act of getting a new loan to pay off and replace the old one. Borrowers will refinance their loans to get new ones that offer more favourable terms, usually lower interest rates, but it could also be to receive cash, as in the case of a cash-out refinance.
In order to be eligible to refinance your private mortgage, you need to improve your credit score significantly from the date you get approved for the original loan. You can choose to refinance with the same lender as before or a new one. The exact terms offered to you will depend on how much your financial situation has improved and the value of the home if you are trying to refinance a mortgage.
Interest Rate for a Private Loan in Ontario
With a private loan in Ontario, you can expect to pay an interest rate between 6% and 12%, however, some lenders may charge upwards of 14% depending on your credit score, income and the value of your property. As can be seen, private lenders can charge a wide variety of interest rates to borrowers. The difference between getting an interest rate of 6% or 12% on a second mortgage is equivalent to tens of thousands of dollars each year.
Getting the lowest interest rate possible is vital to securing a private loan that you can reasonably manage and pay off without issue. It will help you ensure that you can get the funding needed to ensure your child gets the education they need to grow their career, without causing financial hardship. Many private lenders don’t advertise to the public, so finding some that you can work with can be a challenge in itself. You can’t expect to get a low-interest rate if you can’t review and compare different private lenders.
The brokers and real estate professionals at Mortgage Broker Store have been working in Ontario’s real estate industry for over a decade. Throughout their history, they have worked with hundreds of private lenders across Ontario and developed a vast portfolio of lenders who can provide private loans. If you think you might need a private lender to help pay for your children’s education, then consider calling (insert number) or filling out a form on this website for a FREE financial consultation. The brokers at Mortgage Broker Store will ask you some questions before accessing their network to find private lenders who can work with you.
Mortgage Broker Store is both a direct private lending company and mortgage brokerage, and can negotiate with lenders on your behalf to get the best deal. This way you can fully explore your options and get more favourable terms on your private loan. This ensures you have the best chance of funding your child’s higher learning, helping set them up for success later in life. Advanced education is vital for the development of young minds into the leaders of tomorrow, and Mortgage Broker Store is committed to helping provide families with financial options to ensure their children have the same access to educational opportunities as their peers.
