If you want to access your built-up home equity in Waterloo, you may need to work with a private mortgage lender to make it happen. The problem is that most banks don’t want to lend out funds to just anyone. Banks and other financial institutions like credit unions have strict rules and regulations that govern who they can work with, and as a result, they turn down most loans they receive.
In an already strict lending environment, inflation and high interest rates have made qualifying for a traditional mortgage from major financial institutions in Waterloo even harder. In these circumstances, borrowers have been turning to private lenders.
What Are Private Lenders?
Private lenders are individual businesses or individuals who lend their funds to borrowers. In Waterloo, private lenders prefer to lend their money in the form of registered mortgages secured by a property, usually a home. However, it can also be a vehicle or an unused plot of land.
Just like banks, private lenders charge interest on the mortgage loans they provide. Private lenders do not adhere to the same rules as banks, allowing them to service hard-to-place loans most financial institutions reject. Borrowers who fail to get loans from banks will often turn to private lenders as an alternative funding source.
If you own a home in Waterloo or want to become a homeowner in the region, you can work with a private mortgage lender to access the funding you need. While private lenders specialize in working with individuals who can’t or cannot work with banks, they also have their criteria for approving mortgage applications.
Common Reasons Why People Need Private Mortgages in Waterloo
There are countless possible uses for a private mortgage, but some of the most common include:
- For living expenses after being laid off from work
- To stop a power of sale or foreclosure
- To buy or mortgage an undeveloped plot of land
- For home improvement or repairs
- To pay college or university fees
- To pay off high interest credit card loans
- Rejected by the bank
- To buy a vehicle
Benefits of Working with Private Lenders
Reasons for Financing
When applying for a mortgage, you must state why you need the money. Banks often reject loan applications that are not for buying a home, compared to private lenders who are very lenient and will approve loans for various reasons, from tuition and living expenses to weddings and home purchases.
Poor Credit Score
Credit scores are a 300 to 900 point rating system that evaluates borrowers’ creditworthiness based on a wide range of factors, including their credit history and income. A ‘poor’ credit score is one below 600. Banks in Waterloo will not lend to borrowers with credit scores below 650 under any circumstances.
Small and Short-Term Loans
With a private mortgage, borrowers can get mortgage loans as small as $30,000 and/or terms as short as one year.
Quick Financing
Bank loans can take a long time to process, sometimes up to a month or more. This can be a big hassle when funds are urgently needed to facilitate a home sale. If you can’t get the money you need in time, you may be unable to purchase the home.
Private lenders can process mortgage applications much faster. If the situation requires it, you can obtain the necessary funds within the week. Private lenders do not need to follow the same rules as the banks and can even tailor mortgage solutions to customers’ needs.
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% to 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. Calculate this ratio by taking all existing mortgages plus all proposed mortgages and dividing by the appraisal value.
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%.
Why Private Lenders Have an Eye on the Waterloo Real Estate Market
Private lenders target highly valuable real estate, making Waterloo a desirable market.
In 2010, the average home in Waterloo spent 70 days on the market before selling for an average price of $329,797. In July 2024, the amount of days the average home spends on the market before being sold has been cut to 22 days and the average selling price has more than doubled to $782,716.
More private lenders in Waterloo seek to earn a living from the promising Ontario real estate. Ontario’s real estate market has seen skyrocketing prices over the past few years, drawing significant attention. Waterloo real estate is in demand for those seeking Toronto’s economic opportunities while enjoying Waterloo’s space and affordability.