Choosing a mortgage provider can be very difficult, especially if you are struggling to meet the strict approval criteria set out by traditional lenders. Private mortgage lenders exist to serve borrowers who cannot get mortgage approval from traditional lenders. A private mortgage lender (also sometimes called a C Tier lender) is a person or financial entity that works independently of federally or provincially regulated financial bodies such as banks, credit unions, and trust companies.
Private mortgage lenders in Ontario offer mortgage loans to borrowers and have lenient approval criteria. While private mortgage lenders are more lenient and faster than traditional lenders, they also have higher rates and fees. This article goes in-depth about private mortgages and the lenders that offer them.
What is a Private Mortgage?
A private mortgage is a loan secured by real estate that is offered by an entity that is not a government-regulated lender. The key differences between a private mortgage and a traditional mortgage are that private mortgages are more straightforward to arrange and are more costly. These unregulated lenders are often wealthy individuals or groups that are looking to make a profit by investing in mortgages. Borrowers usually seek out private mortgage lenders in Ontario after being rejected by banks, trust companies, and credit unions. Private mortgage lenders in Ontario tend to serve people who have credit issues, irregular income or need money quickly.
How Do Private Mortgages Work?
Private mortgages function similarly to traditional mortgages but with significant differences in how eligibility is assessed. Private lenders primarily focus on the property itself rather than the borrower’s income or credit history. Key factors include the property value and the home equity, which is the difference between the property’s value and any existing debt secured against it. This is why private mortgage lenders often refer to themselves as “equity-based lenders.”
Since having a significant amount of home equity is crucial for these lenders, they may refer to a metric called a Loan-to-Value (LTV) ratio in order to measure the amount of equity. In simple terms, the LTV ratio is the value of all existing and requested mortgages divided by the appraisal value of a property.
Here is a simple example:
- Property Value of: $1,000,000
- Existing First Mortgage of: $500,000
- Requested Second Mortgage of: $100,000
- LTV Ratio: (500,000+200,000)/1,000,000 = 60%
As you can see from the above, the LTV ratio on the mortgage request is 60%, which is considered acceptable for most private mortgage lenders. While the banks also use LTV ratios, this term is more frequently used in private mortgage lending due to the increased focus on equity. Banks are also far more likely to reject mortgage requests for reasons other than equity requirements.
Many private mortgages have a one-year term with interest-only payments. Private mortgages are typically only recommended as a short-term solution, and it is crucial to have a plan to fully repay the mortgage. These plans are also referred to as “exit strategies,” and most mortgage providers will help develop these plans with borrowers. A typical exit strategy is to improve the borrower’s credit and income and get approval for a more affordable bank mortgage later.
Who Should Consider a Private Mortgage?
Borrowers who are struggling with mortgage approval at traditional lenders may want to consider getting a private mortgage. Self-employed people or people who do gig work can struggle to provide sufficient proof of consistent income. Traditional lenders rely on government documents such as Notice of Assessment (NOA) and T4 statements to verify income, and this may not be a true representation of a person’s income if they do not have a traditional job. Borrowers with bad credit may also consider private mortgages since these documents focus on LTV ratios instead of credit scores.
Homeowners who are facing urgent financial issues, such as eviction from Power of Sale can also benefit since private lenders offer faster approval. While traditional lenders can take weeks, a private mortgage lender can offer approval in 1 to 2 business days and fund the mortgage within 10 to 15 business days. While more expensive than traditional mortgages, private mortgages are often cheaper than credit card loans, which makes these mortgages an effective tool for debt consolidation. Whether you’re rebuilding after financial hardship or seeking short-term funding, private mortgages offer flexible solutions tailored to your unique circumstances.
Where Can I Get a Private Mortgage?
Private mortgages in Ontario are offered by a range of lenders, each catering to different borrower needs. These include:
- Individual Private Lenders: High-net-worth individuals who fund mortgages as an investment.
- Mortgage Investment Corporations (MICs): Organizations pooling funds from multiple investors to provide diversified mortgage portfolios.
- Syndicated Lenders: Groups of investors who co-fund large loans to reduce risk.
To secure a private mortgage, borrowers must work with a licensed mortgage broker or agent. The Mortgage Brokerages, Lenders, and Administrators Act (MBLAA) governs brokers and private lenders, while the Financial Services Regulatory Authority (FSRA) ensures compliance with provincial standards. Some private lenders may hold their own mortgage brokering licenses, while others partner with licensed brokers to provide their services.
Private mortgage professionals operate in different ways. Some have physical offices and storefronts where you can meet in person, while others conduct business entirely online, connecting with borrowers through websites or advertisements. To ensure a professional is qualified to offer private mortgages, check for a Level 2 Mortgage Agent license or a Mortgage Broker license registered with FSRA.
Steps to Find a Private Mortgage:
- Search for Licensed Brokers: Perform an online search or ask for referrals from trusted sources.
- Evaluate Lenders and Brokers: Look for clear communication, transparent fees, and a proven track record.
- Check Licensing: Confirm the professional is licensed through FSRA to avoid dealing with unqualified or predatory lenders.
By partnering with a licensed mortgage broker, you can confidently navigate Ontario’s private lending market and find a solution tailored to your financial needs.
Approval Requirements for Private Mortgage Lenders
Compared with traditional lenders, private mortgage lenders evaluate mortgage applications very differently. The key question that a private lender will consider is, “Am I likely to recover my investment if the property is to be sold?”. For that reason, private lenders will focus on these property-related factors:
Equity and the Loan-to-Value Ratio (LTV):
The most important criterion for any private mortgage request is the amount of home equity, which is measured using an LTV ratio. As of December 2024, most private mortgage lenders can offer mortgage loans up to 75% of the property’s value for major Ontario cities. Some lenders may also have a minimum down payment or equity requirement. As of December 2024, many private lenders will insist on a minimum $100,000 down payment or to have the same in remaining home equity.
Property Location:
The location of a property is another important factor that lenders consider. Lenders prefer to lend on homes in major Ontario cities. Properties in rural areas tend to be more challenging to sell and appraise, causing lenders to be more hesitant to lend. While private lenders may still lend on rural homes, they often have stricter LTV requirements and higher rates and fees.
Property Type:
Private lenders prefer single-family residential homes, as these are easier to resell. They are often hesitant to lend on unconventional properties, such as vacant land, multi-unit buildings, or commercial properties. As with rural properties, private lenders may place lending restrictions and have higher costs on unconventional properties.
Mortgage Type:
Some private lenders may view second mortgages as more risky than first mortgages. In some cases, a first mortgage lender can complicate things for second mortgage lenders by adding penalties and fees onto the first mortgage or by simply being uncommunicative. Any second mortgage lender will rely on information on the first mortgage before offering approval on a second mortgage. Due to this perceived risk, some private lenders may decline second mortgage requests or add restrictions and extra fees.
How Private Lender Criteria Differ from Banks
Private lenders are more flexible than banks, making them ideal for borrowers who don’t fit traditional lending criteria. While banks may finance a broader range of property types and locations, they impose strict requirements on credit history, income verification, and debt ratios. Private lenders focus on the property’s market value as collateral rather than relying on the borrower’s credit history or debt-to-income ratio. Borrowers with poor credit can often qualify if the property has sufficient equity.
Costs Involved in A Private Lender Mortgage
Private mortgage lenders are more expensive than any other type of mortgage lender. There are no standard costs, but most lenders try to offer rates and fees that are competitive with other lenders. Here are some costs to expect as of December 2024:
- Interest Rates: Typically between 8% and 12%
- Lender Fees: Usually between 2% and 4%
- Broker Fees: Set to match the lender fees, which are usually 2% and 4%
- Appraisal Fee: $500 + HST for single-family homes in Ontario. Larger or unconventional properties will cost more.
- Legal fees: These range from $1,000 to $3,000, depending on the mortgage request.
How LTV Affects Costs
The Loan-to-Value (LTV) ratio plays a big role in determining your costs. Simply put, the closer your mortgage is to the lender’s maximum allowable LTV (typically 75%), the higher your rates and fees. Lenders see higher LTVs as riskier, so they charge more to compensate.
Here’s an example of how costs can vary based on LTV:
| LTV (%) | Interest Rate (%) | Lender Fees (%) | Broker Fees (%) |
| 50% | 8% | 2% | 2% |
| 60% | 9% | 3% | 3% |
| 70% | 11% | 3.5% | 3.5% |
| 75% | 12% | 4% | 4% |
What You Need to Know About Fees
Your mortgage amount includes specific fees, such as lender, broker, and legal, which are included in your mortgage amount and count toward the LTV. If your request is already at 75% LTV before fees are added, you might exceed the limit and not get approved. Appraisal fees are typically not included in the LTV and are paid by the borrower directly after the inspection is performed.
A good mortgage broker will provide documents that clearly outline all costs related to the mortgage, and whether or not they are included in the mortgage amount. Reviewing the costs with your broker is always a good idea to make sure they fit your financial plan.
When applying for private mortgage lenders in Ontario, you must state why you need the money. Private lenders are usually lenient and will accept the most reasonable responses.
Some popular responses include:
- To pay off high-interest credit card debt
- To pay for home repairs or renovations
- To cover living expenses after a work layoff
- To stop a power of sale or foreclosure
- To pay tuition fees for college or university
In many cases, borrowers approach private lenders for mortgages and loans to help consolidate existing debt or prevent property loss through foreclosure or power of sale proceedings. Many people juggle multiple types of debt at once. For example, as noted above, you might have a mortgage and a significant amount of credit card debt or outstanding student loans. Since mortgage and student loans are owed to different collectors, you may have to keep track of multiple monthly debt payments. A mortgage from a private lender can be enough to pay off what remains on your mortgage and your student loans. Upon settling individual debts, you’ll have a monthly payment to your lender, simplifying your financial obligations. Many borrowers find this an easier way to manage debt.
People who cannot qualify for a low-interest rate loan at a bank are the kind of clients that private lenders seek out. Our private lender network can provide mortgages to people turned down by banks. Most private lenders will offer a rate between 8% to 12%. If you’re a borrower with bad credit, you’ll find more information below.
Private Mortgage Lenders for Bad Credit Borrowers
Equifax defines bad credit as a score between 300 and 579. There are several ways that you can negatively affect this number. Creditors and lenders look at several factors, and at the top of the list are on-time bill payments. Miss several, and your score goes down. Different credit scoring models look at the different types of credit accounts an individual has to decide on a score. They also look for other features, including a low debt-to-credit ratio.
Private mortgage lenders override some traditional banks’ requirements for bad-credit borrowers. For example, these alternative lenders will accept alternative sources of income like contract work. A bank, on the other hand, has more strict requirements that include presenting detailed work histories and pay stubs.
An alternative lender focuses on a property’s value and equity. Equity is defined as the amount of the property that’s being paid off and is mortgage-free. Private lenders use the Loan-to-Value (LTV) ratio to decide who gets accepted.
Private Mortgage Lenders for Bad Credit Borrowers and The LTV
Private lenders use the Loan-to-Value (LTV) ratio. Simply put, the LTV ratio is the percentage of the property’s value owed in mortgages. If a homeowner has a home worth $1,000,000 with a $500,000 first mortgage and is requesting a $250,000 second mortgage, the LTV ratio for the requested mortgage can be up to 75% of the property’s value. Most private lenders accept a maximum LTV of 75% in cities and 65% in urban areas. If you’re someone with bad credit and want to apply for a private mortgage, you can boost your LTV and equity with modest upgrades and renovations.
Why Home Renovations Matter
Home renovations are important if you’re applying for an alternative loan. Boosting your property value during an appraisal means an improved LTV ratio. That makes applying for a loan more attractive to a private lender because it demonstrates a lower risk. HGTV Canada is a channel that focuses on home improvement. They suggest that upgrading kitchen counters is one of the best renovations because it has a return on the investment of almost 100%.
They also suggest that painting is another excellent choice if you’re looking to improve your LTV. This reno has a return of 60%.
Finally, it’s important to keep in mind that private mortgage lenders for bad credit borrowers have a streamlined application process. One of the reasons for this advantage is private lenders put more emphasis on the property’s value and the equity built up in it. That makes approval quicker because less time is spent on assessing credit.
Fast Financing from Private Lenders
What do you do when faced with a sudden emergency expense, such as home or automotive repairs due to a flood or accident? If, like many Canadians, you lack sufficient savings to cover an expense of a few thousand dollars while maintaining regular bill and mortgage payments, the most obvious options are taking out another loan or deferring payments for your existing mortgage.
Both options have merit, but what if you need the money faster than banks can provide it?
The major banks in Ontario must follow a comprehensive and time-consuming mortgage approval process. There is no possible way to have a bank speed up its mortgage process. Aside from the above reasons, this can also be an issue for property sales requiring quick money. Private lenders can provide mortgage money much faster than banks can. A private lender can provide funding in as little as one day if needed. Our network of private lenders and private mortgage companies can lend on real estate in every city and town in Ontario. Call one of our private mortgage brokers to discuss your mortgage and get money from private lenders.
Private Lenders in Ontario offer a variety of loans, including:
- First mortgages
- Second mortgages
- Bad credit mortgages
- Home equity loans
- Hard money loans
Many private lenders work with mortgage brokers to connect with potential clients and borrowers. To find a mortgage when rejected by banks, book an appointment with a mortgage broker. A reputable broker clarifies loan options, eligible interest rates, and ideal lenders for your needs.
These professionals will be able to look at your financial situation and decide on the appropriate loan. Borrowers who are burdened with high interest rate credit debt and others should look at putting everything together into one easy payment.
Debt Consolidation Loans
This is one of the other products private lenders in Ontario provide to their clients. Debt consolidation is all about taking a number of high-interest debts and combining them into a single loan with a lower interest rate, which simplifies monthly payments.
Borrowers still need to keep in mind that a loan for that consolidation can carry a higher interest rate than a traditional counterpart. It’s also important to keep in mind there’s a risk of a power of sale if the payments aren’t made on these debt consolidation loans.
These loans are secured against the property, which is used as collateral. If a borrower misses payments or breaches a covenant of the agreement, a foreclosure or power of sale can result.
Usually, one of these private mortgage loans is good for one year. A debt consolidation of this type is a great way to get a borrower back on their financial feet, but they need to have an exit strategy. For example, to improve their finances, it can be a good idea for the borrower to sell the property. That’s one way they can pay off the debts that they owe and perhaps walk away with additional money.
A debt consolidation loan also comes with higher interest rates. Most private lenders charge between 8% and 12% interest as of September 2024. These rates quite often depend on how close the requested mortgage is to what’s been decided as the maximum LTV ratio. For example, if a requested mortgage has an LTV ratio of 30%, the applicant can expect to get good rates. The same works in reverse if the requested mortgage is at or near the maximum LTV.
These debt consolidation loans also have fees that are a combination of legal, broker and lender fees. They can also be affected by the LTV ratio and range from 4% to 8% of the entire total loan amount.
Debt consolidation with a private lender is an excellent choice for people who have high-interest-rate debts and want to consolidate them into one manageable payment.
What Is a Bridge Loan?
A bridge loan is another one of the products that alternative and private lenders offer. These are designed as short-term financing that can be used for the gap when you are buying a new property and selling an existing one.
These are short-term loans that only last a few weeks to a few months. They have higher interest rates because they have a higher risk. These are easier to qualify for with an alternative lender because the emphasis is on equity rather than credit scores.
If you’re a curious homeowner, you’re probably also wondering what the advantages are.
The Advantages
There are several advantages to getting this type of loan. A private lender supplies quick approvals and fast funding times when compared to more traditional banks. This is important for investors and people wanting to buy another property.
Applicants who are having credit issues have a higher chance of success with a private lender. Because alternative lenders focus on equity rather than credit scores, people who have a poor rating, which is below 560, according to Equifax should apply for a bridge loan through a private lender.
Private lenders can also customize the loan terms and that separates them from traditional lenders, who are much less flexible.
There are risks involved with one of the products as well.
What Is a Bridge Loan? The Risks
Timing is important when it comes to the success of a bridge loan. In a slow real estate market, a seller might have a difficult time getting rid of the property. There are additional fees that come with one of these loans as well. Because acceptance is based on the equity that’s built up in the property, there will be an appraisal fee.
Bridge loans are secured against the property that is used as collateral. If it doesn’t sell in the allotted time frame, a borrower can risk a power of sale or foreclosure.
Repaying the Bridge Loan in Full
Borrowers need to be careful and watch that the property value doesn’t drop unexpectedly. In that situation, they might not be able to resell and fully repay the bridge loan. Borrowers also need to be careful that a bridge loan doesn’t negatively leverage their financial situation. Putting too much of a strain on their finances can put them close to default.
A broker can also walk you through the steps and requirements for getting approved for a loan from private mortgage lenders in Ontario and help you gather all the paperwork you’ll need.
Private lenders establish their own lending criteria, notwithstanding their lack of obligation to federal regulations on borrower eligibility.
When Should You Choose a Private Mortgage Lender?
Before you apply for a loan, it’s best to decide if you’re a good candidate for a private mortgage. Here are a few things to consider:
These are a good option if you need the money quickly. Mortgage loans from a private lender are approved quicker than traditional bank loans, and you’ll get the money faster with the right private mortgage term. The right mortgage term depends on your financial goals, repayment ability, and loan purpose. Shorter terms suit temporary needs with faster repayment, while longer terms provide stability but may incur higher overall costs.
People who work at non-traditional jobs find mortgage loans a good option. Those include self-employed people and contract workers as well as freelancers.
If you’re suffering through financial difficulties and need some money to help you stop a power of sale foreclosure, a private mortgage is a good idea.
Consolidating high-interest-rate debts into one easy-to-pay option is another bonus.
Some applicants have recently changed their jobs or have an unexpected layoff to contend with. A private mortgage can give you a short-term loan that can help you over one of these situations.
One of the best times to apply for one of these loans is when you are struggling with an existing mortgage. It’s another excellent time when you should choose a private mortgage lender.
Is Your Mortgage in Arrears?
When a mortgage falls into arrears, and the borrower is behind on their payments, a power of sale can be used for the lender to recover their principal interest and expenses. This process begins when the borrower breaks the terms of a mortgage agreement. That can include missing payments and a breach of a covenant.
Those can include failure to ensure the property or pay the taxes as well as using it for illegal uses or damaging it on purpose. A Notice of Sale follows 15 days after a default. There is a waiting period after the notice of sale comes through that’s called the Redemption Period.
During this time, a borrower can apply for a private mortgage to get the money to stop the power of sale process. There are several things that a borrower should know about this option.
Mortgages Are Secured Against the Property
These loans are secured against the property, and it’s used as collateral. That means a borrower needs to have enough equity built up to apply. Remember, mortgage loans are based on equity rather than more traditional criteria like a credit score.
Private mortgage loans are also a short-term solution, and the term is usually one year. That means they provide a temporary band-aid solution to stop a power of sale, but borrowers need an exit strategy.
How to Get the Lowest Private Mortgage Interest Rate
To get the best interest rate for a private mortgage, a homeowner must meet at least three criteria. The first and probably the most important is a low Loan-to-Value ratio (LTV). A low LTV means it is a low-risk mortgage and, therefore, should get a low interest rate. Second is the income of the owners. If the homeowner can meet all their financial obligations, the lenders will be more confident that the borrower can make their payments. Third is the credit score. A high credit score means you can pay all your bills and have a low chance of missing payments. You’ll get the lowest rates.
In Canada, “good credit” usually means a score of 700 or higher (900 being the highest possible score). Scores between 550 and 700 are fair, and you can often still get a mortgage from a bank or credit union with such a score, albeit at a higher interest rate. Scores below 550 indicate poor credit. Many private lenders will offer poor credit mortgages, high interest, and short-term mortgages specifically designed for those with credit who are too poor to get a loan from a bank. However, the higher your credit score, the lower your interest rate can be.
It is important to know that while mortgage approval is mainly based on LTV, other factors can influence private lending interest rates. Before applying for a mortgage, consult a private lender or mortgage broker to gauge approval prospects with your credit rating.
Hard Money Loans from Private Mortgage Lenders
The term hard money lender refers to lenders that want the loan secured against hard assets such as a house or condo. Private hard money lenders operate in basically the same manner as other private lenders. They are looking for hard assets such as houses, buildings, plazas, retail stores, and other real estate. Many hard money loans in Ontario are registered as mortgage loans.
Hard money loans are usually short-term, lasting anywhere from a few months to a few years. Because these types of loans depend on the borrower’s assets rather than their financial stability, they tend to be riskier and, therefore, come with higher interest fees. Borrowers often resort to hard money loans as a last option to settle defaulted mortgages or halt a Power of Sale.
During the application process, ensure readiness to furnish all financial statements pertaining to commercial or retail buildings. Bear in mind that only the value of the house or property will be considered. Hard money lending does not tend to apply to the business value.
Private Real Estate Financing
Private real estate financing refers to any loans or funding acquired from a private lender.
This may be the best alternative if you are trying to find financing for your house or other real estate ventures. While banks and other top lenders can offer lower interest rates, high demand, stringent lending policies and a strict pre-approval and approval structure can mean that a conventional mortgage simply doesn’t suit your needs.
Private money lenders in Toronto and the GTA can provide loans up to an LTV of 75%. Commercial real estate financing usually requires large amounts of money, and private funding can take time. Planning financially is crucial to avoid relying on emergency financing when needed. Consult your private mortgage broker to ascertain loan qualifications for starting a business or acquiring commercial property. Toronto private lenders can also provide information on local real estate markets.
Do You Need Private Mortgage Insurance?
Private mortgage insurance typically refers to a type of insurance designed to protect the lender in the event of a mortgage default. In Canada, private mortgage lenders cannot typically obtain mortgage default insurance for their loans. This is because private lenders operate outside traditional regulatory frameworks and often take on higher-risk mortgages, making them ineligible for such coverage.
Mortgage insurance is most commonly used in conventional mortgages with low down payments, usually provided by banks. In Canada, mortgage insurance is mandatory for homebuyers who put down less than 20% as a down payment on a conventional mortgage loan. This insurance protects lenders and helps facilitate homeownership for buyers with smaller initial investments.
The majority of mortgage insurance in Canada is provided by the Canada Housing and Mortgage Corporation (CMHC), a federally operated crown corporation.
The most recent requirements for insured mortgages include:
- An amortization period must be 25 years or less.
- For home purchases between $500,000 and $999,999, a higher down-payment is needed. The minimum down payment must be 5% up to $500,000 and 10% for the remainder of the mortgage.
- Properties valued at over $1,000,000 cannot get mortgage default insurance.
There are two other companies that provide mortgage insurance: Genworth Financial and Canada Guaranty. These are private companies but are still tightly regulated by the government. The requirements for getting mortgage insurance with these companies are typically very similar to the requirements given by CMHC.
While private mortgages cannot be insured in case of default, there are still other insurance requirements. Most private lenders will require that the property be insured against fire damage and other natural disasters. Many private lenders will also insist that borrowers have either life insurance or mortgage loan insurance, which protects the lenders in the case of the borrower’s death.
Private Mortgage Lender Loans
Typically, private mortgage lender loans require more than 25% equity in the property. Equity typically refers to the property’s value not tied up in debt. For example, if your home is valued at $1,000,000 and you have a mortgage of $750,000, you have 25% equity.
To secure approval, private lenders often demand property appraisals to determine its current market value. Residential properties usually require more than 25% equity, while commercial properties need around 35%. They calculate a Loan-to-Value (LTV) ratio, which is the measure of equity. Typically, a max of 75% LTV and at least 25% equity.
Private mortgage lenders in Ontario prioritize equity; a high LTV indicates greater risk. They consider their ability to recoup losses if the borrower defaults. While LTV is crucial, factors like steady income and financial responsibility can influence loan terms.
Information on Lenders in the Ontario Real Estate Market
Situated in the southern part of Canada, Ontario shares a border with the US. Its real estate market, particularly in cities like Toronto and its surroundings, has been a focal point of political discussion due to sustained double-digit price growth over recent years. Private real estate lending is increasingly popular among residents seeking additional income opportunities. Ontario, a Canadian economic powerhouse, is highly coveted as one of the nation’s premier residential destinations.
Ontario-based private lenders specialize in mortgages and home equity loans, serving a wide range of real estate buyers.
Private lenders may work independently or as part of a mortgage syndicate or mortgage investment corporation (MIC). In the latter scenario, multiple investors pool their money, enabling them to invest in numerous mortgages simultaneously, thereby reducing risk. Private lenders, using personal capital for mortgages, might have stricter lending criteria, including borrower eligibility and mortgage terms.
Ontario: A Thriving Province with Flexible Private Mortgage Options
Ontario is a fantastic place to call home, offering diverse cities, vibrant culture, and beautiful natural landscapes. From the dynamic metropolis of Toronto to the stunning beauty of the Great Lakes, Ontario has something for everyone. For those looking to purchase a home or invest in real estate, Ontario’s competitive housing market can sometimes make traditional financing options challenging to secure. That’s where private lenders come in, offering flexible mortgage solutions that cater to those who might not meet the criteria for bank loans, ensuring more opportunities for homeownership across the province.
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Do We Specialize in Private Commercial Mortgages, Too?
Mortgage Broker Store also handles these types of private mortgages. We can provide alternative loans, such as money tailored explicitly for construction projects and debt consolidation loans.
A commercial second mortgage can be just the right product when a business needs to temporarily boost its cash flow to buy new equipment or meet payroll. This type of loan, based on equity rather than a credit score, is perfect for bridge loans.
These are excellent choices for small businesses that need immediate financing to buy property or renovate an existing location. They are also excellent choices for investors looking to invest in commercial real estate projects.
Mortgage Broker Store offers more flexible application criteria and quicker processes than a traditional bank. Remember, an alternative lender offers several other advantages, including customized loan terms. These fit seamlessly with your business’s specific financial needs.
We specialize in private commercial mortgages, giving small businesses access to higher-risk financing. Contact us to find out more about how you can finance a high-risk project, startup, or potential enterprise in high-risk industries.
Once I Am Approved, How Quickly Can I Get My Private Mortgage Money?
A mortgage loan is processed much faster than a traditional one. This is partially because these alternative lenders prioritize equity over credit scores. The process is faster because they also allow income sources traditional banks reject.
Lenders, (A, B and C lenders) might ask for a series of T4 slips and an employer’s verification letter. Private lenders also accept money earned through contract or gig work and the profits of sole proprietors.
A private lender can make decisions much quicker because there are fewer layers to go through. They don’t need to wait for different levels of approval like a traditional bank or credit union. Their process is more direct and faster.
Many of these alternative lenders have immediate capital available. That eliminates the layers of Bank disbursements that can slow down the entire process.
Applicants can do a few things to speed up the process, including having a clear plan for using the money. Individuals planning to use the loan for a property purchase or renovation should be clear with an alternative lender. Mortgage loans can be used for various purposes like emergency repairs and even stopping a power of sale or foreclosure with the money provided.
Is Every Private Mortgage Contract the Same?
No, private mortgage contracts are different and based on individual lender’s policies and each borrower’s situation. Several other factors can influence the differences between these products. They include:
Fees and repayment terms can be slightly different because these numbers are determined by different factors. The borrower’s finances are one key factor, and the property location is another.
There are other variables. These include different interest rates depending on the alternative lender you’re dealing with. For example, as of September 2024, many private lenders are charging between 8% and 12% in interest fees. These are higher than what you pay through a traditional bank because the risk is greater.
Another factor that differentiates private mortgage contracts is the fees. These can include a combination of legal, broker, and lender fees and can be affected by the LTV. Depending on the company, these rates can range from 4% to 5% of the total amount of the loan.
How Do Private Money Lenders Work?
Private lenders aren’t subject to the same strict regulations as banks. Private lenders must work with a licensed mortgage broker, which FSRA regulates. Due to federal laws, banks must first and foremost look at an applicant’s financial history and situation. To secure a bank mortgage, demonstrate your ability to repay by showcasing a history of responsible debt repayment. Learn more about how private lending works.
How Do You Become a Private Lender?
Becoming an alternative or private lender requires that you take a few steps and check a few boxes. Here is a quick overview of the steps that you need to take. Remember, it’s always a good idea to consult with licensed professionals to get some Insider tips on how you can make the process faster.
There’s a legal framework that you’ll need to become familiar with at the beginning. That includes the Mortgage Brokerages, Lenders and Administrators Act (MBLAA). Private lenders need to work with licensed mortgage brokers or be licensed themselves. The Act licenses these parties.
Beyond that, you will also need to establish a network. Becoming a private lender also means establishing relationships with licensed mortgage brokers. Mortgage brokers and the private lenders who work with them need to adhere to the MBLAA. The Financial Services Regulatory Authority of Ontario (FSRA) Is there to help ensure that the experts involved adhere to the MBLAA.
You’ll also need to become familiar with the criteria that private lenders use to accept applications. Start by focusing on the property’s Loan-to-Value (LTV) ratio for this short-term loan. This ratio takes into account the amount of any existing and requested mortgages and the appraised value of the property.
What’s the Difference Between a Private Lender and a Private Mortgage Investment Company?
There’s a difference between individual private lenders, syndicated mortgages, and Mortgage Investment Corporations (MICs), which all fall under the category of private lending but operate differently.
Mortgage Investment Corporations (MIC)
A MIC consists of a group of private lenders and offers a diversified portfolio of mortgages, which helps reduce the risk for individual investors. This structure follows specific regulations outlined in the Income Tax Act in Canada, pooling funds from multiple investors to create a varied mortgage portfolio.
Private Lenders
Private lenders have a different structure. They are quite often individuals or smaller companies offering loans secured by real estate equity. They offer more flexible terms and a streamlined application process than traditional banks and credit unions. Private lenders use their capital for short-term loans.
A borrower needs to consider a few things when choosing between the two. For example, private lenders offer highly customizable loan terms. MICs, on the other hand, take a more traditional and standardized approach.
A syndicated mortgage is a type of real estate loan where two or more private lenders pool their funds together to invest in a single mortgage. Typically, this collaborative approach allows each lender to contribute a portion of the loan, reducing the financial risk for individual lenders.
Private lenders have fewer bureaucratic and administrative hurdles, so the approval time for one of these loans is faster. Finally, private lenders might charge higher interest rates, but the flexible terms they can offer can offset those rates.
What Should I Ask My Mortgage Broker If I Am Considering a Private Lender?
Asking the right questions will get you in contact with a private lender. Here are a few queries that you can run by your mortgage broker.
Q: What fees and interest rates will a private mortgage loan charge?
A: Private mortgages usually have higher interest rates and more considerable fees than traditional loans. You should fully understand the fees by getting quotes for the legal and home appraisal aspects.
Q: What is the Loan-to-Value (LTV) ratio, and why must I concern myself with it?
A: The formula here determines how much money can be loaned relative to the property’s value. Usually, private lenders will lend up to 75% using the LTV calculation.
Q: What are the term lengths for a private mortgage, and what are the options for renewing one?
A: Private mortgages usually last one year, which makes them a short-term option. Private lenders will tell borrowers it’s always a good idea to have an exit strategy that can include refinancing or selling the property.
Private lenders have more flexible options than banks or credit unions. That can include payment terms.
What Are the Different Payment Options for a Private Mortgage?
The payment structures that private lenders offer can cater to an individual applicant’s specific needs. Those include:
Interest-only payments are where successful applicants pay only the interest for a loan term. That means the rest of the principal is done at the end of the term. The bonus here is low monthly payments, but a lump sum must be handed over when the loan matures.
Private lenders often offer customized payment plans that allow adjustments to schedules and payment amounts on the fly. This is an advantage to borrowers who have irregular income streams, such as contract workers and sole proprietors.
Another option with the private mortgage loan is partially amortized payments. These cover part of the principal and interest on a monthly basis. Once again, a significant payment is due at the end of the term to cover the entire cost.
Fully amortized payments are another choice. With these, each monthly payment includes both principal and interest, steadily reducing the amount owed to zero by the end of the term.
Some lenders also provide pre-paid mortgage payment options. In this structure, the lender offers extra funds that are set aside to automatically make payments for a specific period defined in the mortgage agreement. This can provide relief and flexibility to borrowers who may need time to stabilize their financial situation.
Alternative lenders can walk through long-term plans and individual finances with borrowers to find the best solution.
How Long Can I Get a Private Mortgage?
Private mortgages or alternative loans typically have shorter terms than conventional bank loans. The vast majority of private lenders offer terms that usually last no more than one year. However, these loans are often renewable with the lender’s approval. Renewal approval generally depends on factors such as whether the property has decreased in value, sustained new damage, or if the borrower has consistently been late with payments.
While your initial term is unlikely to exceed one year, it may be possible to renew the mortgage for multiple years, provided you meet the lender’s conditions. Borrowers are encouraged to have a clear repayment plan and a solid exit strategy, such as refinancing or selling the property, to ensure they can manage the loan effectively.
These short-term loans can also serve as a financial stepping stone. They allow borrowers to improve their financial profiles, potentially qualifying them for a traditional loan at a lower interest rate in the future. Additionally, shorter terms make it easier to secure financing, making private mortgages ideal for investors looking to bridge a deal or homeowners planning renovations. Short durations also mean borrowers avoid being locked into long-term debt, offering greater flexibility.
How Do I Calculate the Interest and My Payments for a Private Mortgage?
Calculating the interest and payments for a private mortgage is straightforward, as these loans often involve interest-only payments that usually do not pay down the principal.
For example, if you borrow $100,000 at an interest rate of 10%, you would pay $10,000 in interest over the course of one year. This equates to a monthly payment of approximately $833.33. The principal remains unchanged unless specified otherwise in the loan agreement.
Private mortgages typically come with higher interest rates than traditional loans, often ranging between 8% and 12% as of September 2024. Additionally, the interest rate is influenced by the Loan-to-Value (LTV) ratio.
It’s also essential to account for fees associated with private mortgages, which are often higher than those for traditional loans. These may include lender fees, legal fees, and other administrative costs, adding to the overall expense.
What Do I Need to Qualify for a Private Mortgage Loan?
To get a private mortgage loan, you’ll need to provide some of the same documents as a traditional one. However, other criteria, like the Loan-to-Value (LTV) ratio criteria, are different. Because most private lenders require an LTV of 75%, borrowers will need to have quite a bit of equity saved up. This applies to all property types. Banks usually insist on a 5% down payment, which equates to a mortgage offer with a 95%.
The location and type of the property also matter when you’re looking to qualify for an alternative mortgage loan. The property needs to be in good condition and in a good location because private lenders often resell them.
Borrowers need to have a clear and transparent repayment plan. Talk with the lender to ensure you understand the payment structure and loan terms. Many of these private mortgages are interest-only, which means a borrower should have a clear repayment plan as well as an exit strategy. That’s because the loan won’t pay off any of the accrued interest.
It’s important to have a proper appraisal done. Make sure the appraiser you choose has the right credentials. A professional appraiser will be able to give you the true market value of the property, and that’s essential.
What Is NOT Needed When Applying for a Private Mortgage?
The process for a private mortgage loan is streamlined, meaning you don’t need to go through the same verifications as you would with a more traditional loan. For example:
When applying for private mortgage financing, you don’t need to worry about formulas like the debt-to-income ratio (DTI). This is one of the ways that traditional lenders gauge the borrower’s ability to repay a loan if their rates change or their financial situation fluctuates. Because private lenders focus on equity, there’s no emphasis on the DTI.
Other factors, like a credit score, are less critical when applying for a private mortgage. Private lenders don’t need you to have traditional income, either. They look at cash flows from contract and gig work and the money made from a sole proprietor’s enterprise.
Why Is a Home Appraiser Important?
Home appraisers assess the value of a property by conducting a thorough evaluation of its condition, location, size, and features, as well as analyzing comparable sales in the area. They use this information to determine the property’s fair market value, which is essential for lenders, buyers, and sellers to make informed financial decisions. Appraisers are licensed professionals who follow standardized guidelines to ensure their assessments are accurate and unbiased.
If you’re looking for a private mortgage, you’ll need an unbiased accounting of your property’s worth, and that’s where a home appraiser comes in. An accurate market value is essential for the LTV, one of the private lenders’ most critical metrics.
Private lenders use these appraisals to help determine how much money they can loan relative to the property’s value. Are you a potential borrower looking for a mortgage loan? You can do some things to increase your market value before an appraisal.
First impressions can make a difference. That’s why a homeowner should look at the property’s exterior, make minor repairs, and spruce up the landscaping to make a positive impact.
If you have time to renovate before an appraisal, focus on high-impact rooms. Bathrooms and kitchens will provide the best return on the investment, even with small improvements like fresh paint and new fixtures.
Finally, providing a home appraiser with a list of recent improvements is a good idea. Some highlights, like a new roof for flooring can go unnoticed unless you bring attention to them.
Can I Qualify for a Private Mortgage Loan After Bankruptcy?
Getting a mortgage loan after filing for bankruptcy is possible through a private lender. Private lenders focus on equity rather than credit history, which makes this possible. Still, there are a few factors that borrowers need to consider for this type of private mortgage fund.
Private lenders charge higher interest rates to compensate for the risk involved in a private mortgage transaction. Many of these lenders charge between 8% and 12% interest rates as of September 2024. There are a few other factors to consider if you’ve gone bankrupt and are looking for one of these loans that bypass credit requirements.
Private lenders charge interest rates based on how close the requested mortgage is to the maximum LTV ratio. For example, applicants with an LTV of 30% are more likely to get a better rate than those applying whose LTV is near the maximum, even with non-traditional income.
A private mortgage also has certain fees, which can include a combination of legal, broker, and lender fees. They usually range from 4% to 8% of the total loan amount for an unconventional property. That’s different from a traditional mortgage lender.
What Is the Difference Between a First and Second Mortgage?
A first mortgage is the primary loan secured by a property, determined chronologically rather than by its purpose. It holds the senior position among any other loans or liens on the property. Even if a home is fully paid off, a new loan taken against the property can still be a first mortgage. Additionally, a property can be purchased using both a first and a second mortgage simultaneously. Most first mortgages have repayment terms ranging from 20 to 30 years.
A second mortgage is taken out after a property already has a first mortgage. It allows homeowners to access equity for various purposes, from home renovations to debt consolidation. These can be used for an investment property.
If there’s a power of sale or foreclosure, these second mortgages are not paid off until the first ones are paid off. Because of the increased risk, these loans come with shorter terms and higher interest rates.
Debt consolidation is a common way to use the money from a second mortgage. High-interest rate debts like credit cards can be consolidated into one monthly payment this way. Consolidating debts into one monthly payment can improve your credit score over time on an investment property. There’s less risk of missing one when you reduce the number of payments made each month.
- Introduction
- What is a Private Mortgage?
- How Do Private Mortgages Work?
- Who Should Consider a Private Mortgage?
- Where Can I Get a Private Mortgage?
- Approval Requirements for Private Mortgage Lenders
- Costs Involved in A Private Lender Mortgage
- Private Mortgage Lenders for Bad Credit Borrowers
- Private Mortgage Lenders for Bad Credit Borrowers and The LTV
- Why Home Renovations Matter
- Fast Financing from Private Lenders
- Debt Consolidation Loans
- What Is a Bridge Loan?
- When Should You Choose a Private Mortgage Lender?
- Is Your Mortgage in Arrears?
- Mortgages Are Secured Against the Property
- How to Get the Lowest Private Mortgage Interest Rate
- Hard Money Loans from Private Mortgage Lenders
- Private Real Estate Financing
- Do You Need Private Mortgage Insurance?
- Private Mortgage Lender Loans
- Information on Lenders in the Ontario Real Estate Market
- Ontario: A Thriving Province with Flexible Private Mortgage Options
- Recent FAQ Post