Whenever you are exploring your financing options, you need to understand what kind of interest rate you should expect from different lenders. For example, when trying to buy a home banks will generally have the lowest interest rates on the market, so they should be your first option for financing. The only problem is that they turn away the vast majority of applicants they receive due to their strict lending guidelines. If you find your loan applications keep getting rejected by banks, you will then need to work with private lenders to get the funds you need.
While banks and other financial institutions will set their interest rates close to the prime rate set by the Bank of Canada, private lenders set their own interest rates based on an array of different factors when determining what interest rates to set for each borrower. Here we are going to explore private mortgage and loan interest rates, what you can expect and what should be considered a good interest rate for your private loan.
Private Loan Interest Rates in Ontario
There is no set interest rate charged on private loans. Depending on your financial situation and the type of loan you are looking to get, the interest rate you will be charged will vary.
Private lenders are made up of businesses and individuals who lend money for profit. As such, the interest rate and fees charged to borrowers will vary greatly between lenders. Private lenders who are family or friends of the borrower will likely charge lower rates, however, this is not guaranteed.
Of course, individual financial portfolios, including assets and income levels will also make an impact on the interest rate you are charged.
When applying for private financing In Ontario, you can expect to pay interest rates ranging from below 7% up to 14% on the high end. The lowest interest rate most private lenders will be willing to accept is around 6%, however, this should not be expected. You should consider a good interest rate on a private loan to be anywhere from 7%-9%. While this value is higher than the typical mortgage or loan from a bank, which would be around 4%-5%, private lenders often deal with riskier borrowers, since they often work with those who have been rejected by banks and other lenders for various reasons. For this reason, private lenders will also charge fees ranging from 3% to 6% of the total value of the loan.
The Main Factors That Impact Private Loan Interest Rates
There are some other criteria affecting private loan interest rates.
Available Home Equity
This is the main factor that influences private loan interest rates. Private lending institutions will primarily look at the amount of equity you’ve built up in your home or property. These lenders usually require homeowners to have more than 25% existing equity before proceeding with a private loan.
The location of the property
Private lenders will require more home equity to lend to those with rural properties, given their slower rates of appreciation and lower consumer demand. Rural homeowners will need more than 30% home equity, while city-dwellers will only need 25% or more in Ontario.
Current income levels
The main thing private lenders are using to determine interest rates is the borrower’s current income levels. While there are no minimum income requirements, the higher the borrower’s reported income over the last 2 years, the lower the interest rate they will be charged.
Banks almost exclusively prefer borrowers with income from a full-time salary, but private lenders are different. Different income types aren’t a barrier to accessing private financing in Ontario. They have much more lenient regulations for income, and they will consider other sources of income beyond a salary including investments, contract work, and self-employed income when determining interest rates.
Private lenders look at additional assets before calculating a home mortgage loan amount. The more assets a borrower owns, and the higher their value, the lower the interest rate they will be charged if they decided to use them as collateral on the loan. Backing your loan with a valuable asset will lower your interest rate as lenders will see you as a lower risk of defaulting on your loan since they can sell your asset to recoup their loan. This is why mortgages and home equity loans have some of the lowest interest rates in the financial industry, as homes are highly valuable assets in Ontario.
Learn More About Private Loan Interest Rates
When looking for loans to achieve your goals, it can be quite difficult to get a clear picture of what to expect. A few searches online can help someone find and compare the interest rates set for banks and other financial institutions, but if they need to get a mortgage or loan from private lenders it can be challenging to do the same. For those looking to explore their private loan financing options and get a good idea of what kind of interest rate is, they can fill out a form on this website or call (insert phone #) for a free consultation with the real estate experts at Mortgage Broker Store.
At Mortgage Broker Store we have been working in Ontario’s real estate industry for over a decade, helping borrowers get the funds they need. Through our experience, we have amassed a vast network of private lenders from across the province. From Windsor to North Bay, Thunder Bay to Ottawa, we have private lenders in every region who can work with you. Once we understand your financial situation and goals, we will find and negotiate with private lenders on your behalf to get the best deal available. With our help, you can find lenders who can work with you and get a good interest rate on your private loan.