Despite default numbers, some Ontario homeowners have felt the pinch to their wallets, possibly facing reduced hours, temporary layoffs, and reduced household income.
With the cost of living and other monthly liabilities, housing costs may be difficult to cover. One way to access funds to cover mounting costs is to take out a second mortgage option. Second mortgages can be negotiated through banks (considered A lenders) or credit unions/trust companies (considered to be B lenders in the mortgage industry). What are some of the reasons to apply for private mortgage financing?
What if your credit is damaged? Owning a home does allow those who may have poor credit or reduced income to take out second mortgages for a number of financial objectives. Reasons to take a second mortgage can include the need to pay off existing debts, pay for any much-needed renovations, pay off legal fees or arrears if in mortgage default, and other pressing financial reasons.
Mortgage financing from the bank will be difficult for those homeowners with poor credit. With rigorous Mortgage stress tests to pass and the requirement of near-perfect credit along with substantial, easy-to-calculate household income, banks and their trust company/credit union counterparts are out of reach for some.
Private lenders are in a position to offer relatively quick, short-term, secure mortgage financing for any type of secondary mortgage request, as well as occasionally renegotiating the terms of a first mortgage that may be in arrears.
Private Loans Are:
- Short-term (usually 1-3 years)
- Negotiated relatively quickly (in as little as 2-5 days to process)
- Calculated using the equity existing in a property
- Based primarily on the Loan-to-Value (LTV)
- A realistic option for those who have bad credit
- Available to provide mortgage financing to those that may have non-traditional income, including self-employed, contract, or freelance income
What Types of Loans Do Private Lenders Offer?
When sitting down with a lender, whether they be a bank, credit union/trust company, or even a private lender (referred to in the industry as a C lender), it is important to have a clear financial picture in your mind. Be clear as to what type of second mortgage loan would be applicable.
It is also advisable to come prepared to a meeting with a lender with any necessary relevant documents. Bring with you a mortgage statement, a recent appraisal, and a list of any outstanding liabilities and financial assets.
Private second mortgage loan options are varied. Here is a brief list of a few key types of second mortgage financing:
- Home Equity Loans
- Home Equity Lines of Credit (HELOC)
- Home Renovation Loans
- Debt Consolidation Loans
- A second mortgage to help with primary mortgage payments
- A Reverse Mortgage (open to those 55 and older who have considerable equity in their home)
Due to the number of private mortgage loans on offer, it is more reason to take the time to sit down and determine if you will be utilizing newly acquired equity in your home and for what purpose.
How Easy Is It to Get a Loan from a Private Lender?
Although much more straightforward and generally considerably faster than borrowing from a bank (in the mortgage sector referred to as an A lender), private lenders will be basing their loan calculations based on broad criteria. This criterion will put less emphasis on credit scores, traditional income sources, and household debt ratio.
All private second mortgage loans represent an additional loan on a property that is already leveraged. There are different second mortgage types available to those who own their own home. Regardless of what option fits a particular homeowner’s requirements, these loans are all calculated using the same basic criteria.
Lenders will be basing their decisions on the following:
- The Loan-to-Value (LTV) of the property in question- Private Lenders will be assessing LTV to determine the amount of equity that can be leveraged for a second mortgage. A high LTV would be 85% or above, a comfortable loan-to-value would be 75% and over, and anything under 65% LTV is deemed a low-risk by a prospective lender.
- A recent appraisal of your property– A lender will assess the current appraised value of your home, which is determined by an appraisal of your property. Based on the appraisal, the terms and amount of a second mortgage option can be calculated.
- The degree of the existing equity in your property– When lenders are approving second mortgage loan financing, they will be looking at the overall level of equity established compared to the amount still owing on your primary mortgage.
- The lender will also be looking at – Any drawbacks to the property, such as leaks, water damage or mould. Any major issues will affect the LTV calculated, lowering the overall LTV amount.
- Location of your property – Location is one of the most important variables in real estate in general. For example, small towns are not considered as prime locations for a private lender to lend out second mortgage financing. The LTV would likely be a maximum of 65% compared to 75% LTV in larger cities such as Toronto.
Because private lenders can overlook credit issues in addition to the easy and quick processing time of most private mortgage loans, it is easier to take out a private loan as opposed to going through a bank for any additional mortgage financing.
Housing Market Update
According to the June 2024 housing report recently released, property values decreased in Toronto compared to June 2023.
In June 2024, the average price of a single detached dwelling increased to $1.5 million. Properties continue to be snatched up quickly. Homes are selling with an average of just 17 days on the market.
Overall default numbers on Ontario properties have also remained low, contrary to expectations. The recently reported numbers of mortgage arrears by the Canadian Bankers Association stand at 0.13%. Of the 2,190,340 owned Ontario properties, only 2,856 are currently in default.
Mortgage Broker Store Can Direct You in Your Search for Private Mortgage Financing
Mortgage Broker Store can help connect you to an appropriate private lender to meet your mortgage needs. We are also in the position to lend out private mortgage financing concerning your overall financial picture. Mortgage Broker Store understands the homeowners’ concerns. We are continually striving to find the best match for your particular mortgage and financing needs. We work with a network of private lenders across the GTA and are more than happy to guide you in important decisions that you will be making during the lending process. To obtain a bad mortgage loan, feel free to contact us at your convenience. We will steer you in the right direction in your mortgage search. Call 416-499-2122 or email ron@mortgagebrokerstore.com and gain expert advice!
