Canadian banks are subject to many government regulations, which turn many people away from banks and towards less regulated private lenders. Most Ontario private lenders specialize in servicing hard to place mortgages that the banks turn down. Ontario’s private lenders do not have to follow the same rules that the banks do. If you’ve been turned away from a bank, a private mortgage lender may be able to help.
Ontario private lenders will loan out money in the form of a registered mortgage secured against real estate. Under the Ontario Mortgage Act, the private lender is allowed to sell the property if the agreed upon mortgage fees are not paid. Private lenders in Ontario will lend as little as $20,000 and typically for one-year terms (unless you request otherwise). For riskier mortgages (I.e., second mortgage or applicant has no income) the fees charged and interest rates will be higher than those of bank mortgages. Private lenders are individuals or companies that generate profits by investing in real estate. The Ontario real estate market is attractive since it has some of the highest real estate appreciation rates in Canada.
Private lenders focus on the market value and existing debts on a property when deciding whether or not to approve a mortgage application. Banks usually use credit score as a key deciding factor with mortgage applications, however private lenders can lend to people with bad credit. Private lenders will calculate a metric called a Loan to Value (LTV) ratio on a property to determine if it is a worthwhile investment. To calculate a property’s LTV you divide the value of the existing mortgages by the market value of the house. To give an example, a house with a market value of $1,000,000 and $800,000 in existing mortgages will have an LTV of 80%. Most private lenders in Ontario will not invest in residential properties with an LTV of greater than 80%.
To get the best interest rate for a private mortgage a homeowner with need to 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 then the lenders will be more confidant 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. It is important to know that while mortgage approval, is mainly based on LTV, other factors can influence private lending interest rates.
While applying for a private lender mortgage you will be required to state why you need the money. Private lenders are usually quite lenient and will accept most reasonable responses. Some popular responses include:
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 who have been turned down by banks.
The major banks in Ontario are required to follow a comprehensive and time-consuming mortgage approval process. There is no possible way to have a bank speed up its mortgage process. This can be an issue for property sales that require money quickly. Private lenders can provide mortgage money much faster than banks can. If required, a private lender can provide funding in as little as one day. Our network of private lenders can lend on real estate in every city and town in Ontario.
Mortgage insurance for a private mortgage can be purchased when the mortgage is arranged. There are a number of factors to consider before you purchase private mortgage insurance. The main factor is the cost, insurance for a private mortgage can be expensive. If the mortgage is only for a short term of 1 or 2 years it may not be worth getting the mortgage insurance. Ask our mortgage brokers if you should get mortgage insurance
Ontario is a province located in the southern part of Canada and shared a border with the US. The Ontario real estate market is the subject of much political debate as the city of Toronto and surrounding cities have experienced double-digit growth in real estate prices for the past few years. Many people in Ontario are turning to private real estate lending to generate extra income. Ontario is known as an economic powerhouse in Canada and is one of the most desirable places to live in the country.