What if Your Credit is Damaged?

It has not been easy for many homeowners. Living through a drawn-out pandemic is enough to contemplate. Having to keep up with increasing housing costs, your first mortgage on your home as well as any outstanding household monthly debt payments has increased the financial burden on many Ontario homeowners.

The pandemic has had an effect on the degree of household income for many. With reduced hours, temporary layoffs, and many trying to carry out business as usual from home, the financial sting has been felt. Ontario homeowners may have had less income due to Covid-19, however, housing costs have remained the same.

For those that chose to defer mortgage payments with the Government mortgage deferral option introduced in Spring of 2020, the time has long passed to put off monthly mortgage payments. Mortgage deferrals were permitted for a 6-month time period only and expired in the Autumn of 2020.

Although the Ontario housing sector has remained robust producing housing numbers that have far outweighed expectations, this does not negate the personal financial impact that Ontario homeowners may have experienced through 2020 and into the first half of 2021. Coupled with changes to many jobs as well as potentially reduced income, Ontario homeowners may have also experienced damaged credit during the pandemic.

Despite poor credit, there still remain options open to take out a second mortgage type using existing equity in your property. If a bank has turned you away for refinancing options, an Ontario-based private lender will be able to negotiate a short-term private second mortgage loan to help bridge the financial gap.  

Private Lenders are Well-Established in Ontario to Help Bridge the Financial Gap

A bank may have turned a homeowner down due to poor credit, however, a private lender will be able to look past poor credit and base secondary mortgage financing based on broader criteria.

Throughout Ontario, private lenders are well-established and experienced in negotiating private secured second (and sometimes third) mortgage options for existing homeowners with poor credit or high household debt ratios. 

There are several features to private second mortgage loans that remain the same despite the type of refinancing a homeowner chooses:

• All Privately negotiated mortgage options are structured as short-term only. Typically, a private loan will be 1-3 years in length. This term length provides sufficient time to restore credit if the loan is paid in full and on time every month. By honoring the terms of a short-term private loan, a homeowner’s credit score will increase which will, in turn, make it easier to obtain other types of refinancing down the road.

• Private mortgage loans are negotiated quickly. The processing time generally takes a little as 1 to 5 days. This represents a faster turnaround time than offered by the banks.

• Private second mortgage loans tap into existing equity in your home. Refinancing terms are based primarily on the appraised value of your property and the degree of equity you have in your home. 

• Private loans can be negotiated despite poor credit. Unlike the banks, a private lender can look to other criteria beyond credit score when determining mortgage loan eligibility.

Types of Second Mortgage Options 

A homeowner’s financial needs will differ. There are also a multitude of reasons for refinancing and looking at the option of a second mortgage on your property. Just as in their bank counterparts, private lenders will be able to negotiate a variety of second mortgage options based on your unique financial needs and overall credit picture.

Private mortgage loan options generally include:

• Home Renovation loans – Can provide the funds necessary for any pressing renovation and updates to your property. By renovating and upgrading your property you will be increasing the value when it comes to resale.

• Bridge Financing– Serving as a bridge between financial obligations or providing the necessary short-term funds to meet immediate financial objectives. Bridge loans are typically 3-6 months in length and are structured to provide a temporary financial solution.

• Debt consolidation loans – If you have multiple debt payments, a debt consolidation loan can help merge these payments into one manageable monthly payment. This will enable all associated housing costs to be covered more comfortably.

• Home equity loans – By tapping into existing equity financial concerns can be addressed such as paying off outstanding debt payments, education expenses, or helping pay your primary mortgage payments reliably.

• Home Equity Line of Credit (HELOC) – Acting like a revolving line of credit enabling funds to be available as the balance is paid off, a homeowner only needs to pay the monthly interest on the line of credit.

How are Poor Credit Loans Negotiated?

When calculating the overall mortgage loan amount and general terms on a private mortgage loan, C lenders (private lenders) will be scrutinizing key criteria that do not rely solely on credit score:

• The Loan-To-Value (LTV) – A private lender will calculate the LTV and will loan up to 75% of the current appraised value of your property. This would equate to 75% LTV.

• A current appraisal of your property – It is imperative that you have a recent appraisal carried out on your home by a recognized and accredited Ontario-based appraiser. Bring this appraisal to any meeting with a private lender. The appraisal will be assessed as the key element in terms of the final loan amount and terms of the private second mortgage.

• The degree of equity in your home – A private lender will be assessing the degree of equity in your home compared to the amount still owing on the first mortgage.

• Any additional financial assets – Although not mandatory, any additional financial assets can help to secure the best terms of a mortgage loan.

• All sources of monthly household income – A private lender will take into consideration all sources of monthly income including investment income, freelance, self-employed, or contract-based.

The interest rates on most private second mortgages range from 7% to 12% depending on the financial picture of the borrower. Just as in any loan assessment, the less equity and high the household debt the higher the rates will be (at the higher end of the interest scale)

Fees associated with private second mortgages will generally fall between 3% and 6% of the total cost of the loan. Although higher than what the banks charge, private lenders will lend despite poor credit, however, the interest rates and fees will reflect that the loan is considered a higher-risk loan.

Mortgage Broker Store Can Negotiate Different Types of Second Mortgage Loan Options

With access to a broad network of well-established and experienced private lenders across Ontario, Mortgage Broker Store can connect an interested homeowner to private lenders to discuss various refinancing options. We will also be able to negotiate private financing directly, depending on your specific financial objectives. Poor credit and non-traditional income need not be a barrier to obtaining a bridge loan or any other loan to help pay off any pressing monthly liabilities. Don’t hesitate to contact us at your convenience to discuss the best options to suit your unique financial circumstances.