Amidst Toronto’s booming real estate market, traditional mortgage options may fall short, especially for homeowners with credit challenges. Private mortgage lenders offer an alternative, providing flexible second mortgage options based on your home’s equity rather than credit score. This article unpacks these options, factors influencing private lender decisions, and steps to prepare for a private loan in Toronto.
Real Estate and Mortgage Trends in Toronto
In the face of the Bank of Canada’s rate hikes and a slowing economy, Toronto’s real estate market remains resilient. According to the Toronto Regional Real Estate Board, the average selling price in July 2024 decreased by under 1% to nearly $1,106,617. Toronto’s growing population fuels the fire, underpinning this robust market behaviour through a supply-demand imbalance. Experts predict that these conditions will likely lead to even higher prices. Thus, private mortgage lenders serve as an increasingly relevant alternative for financial flexibility for homeowners navigating this dynamic market, especially those with credit challenges.
Different Types of Second Mortgage Loan Options
One distinct advantage of existing homeowners is the flexibility to utilize equity in their homes for different financial purposes. Let’s look at some of the second mortgage options available to a Toronto homeowner:
- Debt Consolidation Loans- Debt consolidation loans can provide much-needed additional mortgage financing to merge all monthly debt payments into one debt payment. This private mortgage loan option will help a homeowner reliably cover housing costs while covering debt payments.
- Home Equity Loans- Like other second mortgage options, a home equity loan uses existing equity, offering a lump sum for various financial needs. The homeowner is responsible for paying monthly interest payments on the loan.
- Home Equity Line of Credit (HELOC)– A HELOC is structured as a revolving line of credit using the equity in your home. Funds become available once the balance is paid off and the homeowner must pay only the monthly interest on the balance of the loan.
- Home Renovation Loans– A home renovation loan is a type of second mortgage leveraged against your property. This type of second mortgage loan is used to pay for any home renovation costs and home repairs.
- Bridge Financing- Bridge financing provides a bridge between selling your home and closing on a new one, tapping into existing equity. A bridge loan lasts 1-6 months with only interest charged during the term, offering short-term financial support.
- A Second Mortgage- If a first mortgage risks arrears, a short-term second mortgage provides funds to cover payments, legal fees, and arrears. A second mortgage can fulfill short-term financial needs, serving as an alternative to taking out additional loans.
What Do Private Mortgage Lenders in Toronto Look for When Determining Loan Amounts?
Similarly, like banks, private lenders prioritize mitigating risks when providing mortgage financing for borrowers’ needs. To reduce the risk of a poor credit mortgage loan, a private lender will be assessing a few aspects:
- The degree of the existing equity in your home
- The appraised value of your home
- The location of your property
- The overall condition of your property
- The calculation of the overall Loan-to-Value ratio on a given property
Private lenders prefer over $70,000 in home equity and base financing on current property appraisals for mortgage decisions.
They will assess your home’s current market-appraised value and condition (renovations, fixes, drawbacks like water or foundation damage).
A private lender will evaluate your property’s location, prioritizing urban properties for lower financial risk, alongside addressing any potential ongoing issues.
In general, private lenders will assess the LTV (loan-to-value) at no more than 75% of the appraised value of the property in an urban location and 60% to 65% LTV for properties in more rural areas due to the inherent risk in bad credit loans that private lenders must take under consideration. 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 75% of the property’s value.
What Can You Do to Prepare for a Private Loan
Mortgage Broker Store is in the unique position of being able to directly negotiate second private mortgage financing depending on the homeowner’s particular financial picture. Our extensive network of Toronto private lenders negotiates optimal terms for your second mortgage loan. Access the best options now.
Prepare before meeting a private lender by taking initial steps to facilitate the mortgage lending process, such as:
- Make a list of all your outstanding debts
- Make a list of all additional financial assets
- Have a recent appraisal carried out on your property
- Know your beacon score (credit score) and work to improve it
- Research different second mortgage options
- Clearly express your home equity loan purpose to your lender for favourable mortgage terms tailored to your needs
Mortgage Broker Store Can Help a Toronto Homeowner with Any Second Mortgage Loan Needs
Mortgage Broker Store connects Toronto homeowners with suitable private lenders for second mortgage needs. We constantly strive to find the best match when looking at your mortgage and financing goals.
We’ll guide you through Toronto’s private lending process, collaborating closely with local lenders to help you make crucial decisions. We will steer you in the right direction in your mortgage search. We also provide Scarborough, East York, North York, and Etobicoke mortgages. Our team specializes in connecting clients with the perfect private lender tailored to their needs.
- Introduction
- Real Estate and Mortgage Trends in Toronto
- Different Types of Second Mortgage Loan Options
- What Do Private Mortgage Lenders in Toronto Look for When Determining Loan Amounts?
- What Can You Do to Prepare for a Private Loan
- Mortgage Broker Store Can Help a Toronto Homeowner with Any Second Mortgage Loan Needs