The real estate market in Ontario has baffled real estate professionals. With bidding wars and offers above the asking price common, Ontario real estate remains highly sought-after and in demand. Discover the top five reasons people choose private mortgages amidst the evolving real estate landscape.
What If You Want to Invest in the Ontario Housing Market and Have Poor Credit?
While the banks may be offering mortgages to those with strong credit and substantial household income, those borrowers/homeowners that want to take out a mortgage or apply for a second mortgage on their current home may run into some resistance.
Fortunately, in Ontario, experienced private lenders can negotiate private mortgage terms when banks or credit unions have declined.
When to Take Out a Private Mortgage
In Ontario, the mortgage industry has classified the many lending options into three broad categories defined primarily by borrowers/homeowners’ creditworthiness and type of income as well as overall household debt level.
- A lenders– These lenders are the banks. Banks will routinely put borrowers through mortgage stress tests to determine their ability to carry a mortgage with an increase to their current mortgage rate. These lenders will also demand strong credit scores and substantial household income.
- B lenders– These lenders are Ontario credit unions and trust companies. Private lenders are less strict than banks but still require a credit score of at least 600, substantial income, and a low debt ratio.
- C lenders– Private lenders are referred to as C lenders in the mortgage industry. If a homeowner has poor credit and a higher household debt level or non-traditional household income such as freelance or self-employed, these lenders will be able to negotiate private mortgage financing.
There are compelling reasons to approach a private lender. If the banks are not an option based on the mortgage criteria that they demand, private mortgage financing may be a very good option for some homeowners looking to take out a second mortgage on their home.
Top Reasons to Look Into Private Mortgage Financing
Lenient Approval Criteria– Private lenders consider more than just credit scores, also evaluating household income and its type for approvals. This is possible because private lenders assess the property to determine the extent of mortgage financing available. They will be assessing the degree of equity in your home (you will need to have more than $70,000 in equity), calculate the Loan-to-Value (LTV), and the appraised value of your property as well as the location and current state of your property.
Faster Mortgage Processing- While banks may take weeks to negotiate mortgage financing, private mortgage loans can be approved within days. Completed in just one to two weeks, ideal for urgent financial needs such as power of sale or foreclosure situations.
Flexible Mortgage Terms– Bank mortgage contracts tend to be quite stringent with set terms that are not negotiable. Private lenders can customize terms of a private mortgage loan to better suit the borrower’s specific needs and circumstances.
Large Loan Amounts– While some homeowners may turn to a personal loan or a credit card to help solve short-term financial needs, typically the amount that they will be able to access in these routes will be limited. Private mortgage loans can leverage your home equity to provide additional funds for debt repayment or legal expenses.
Lower Interest Rates- Another drawback of using credit cards for short-term financial needs is the high interest rates typically charged. Credit card companies often charge 21% to 30%, making it challenging for many to repay such debts. Private lenders in Ontario typically charge interest rates ranging from 8% to 12%, based on individual financial circumstances. Fees for private loans are reasonable, typically ranging from 3% to 6% of the total loan amount.
The latest Toronto housing numbers compiled by the June 2024 Toronto market report have the average single detached home is at $1,162,167 with an impressive 17,964 new listings, 12.3% year-over-year.
Mortgage Broker Store Can Direct You to Private Mortgage Options
At Mortgage Broker Store, we are very experienced in the realm of private mortgage financing. We also have specialized knowledge in the area of power of sale and foreclosure. With a network of private lenders province-wide, we can connect you with one to negotiate optimal mortgage terms. Don’t let damaged credit stand in your way of taking out a second mortgage on your valued home. Call 416-499-2122 or email ron@mortgagebrokerstore.com and gain expert advice!
