Category Archives for Private Mortgage
Private Mortgage Lending Misconceptions
“Most Common Private Mortgage Lending Misconceptions Held By Borrowers Today”
If you can’t get mortgage financing from a bank or can’t get it quick enough to meet your requirements, one option to consider is private mortgage lending.
The private lending market has grown considerably over the last number of years and provides real options to borrowers looking to leverage real estate property.
But many potential borrowers either don’t consider private property financing at all, or have some out dated misconceptions as to how private lending actually works.
So today I want to dive into what I consider to be the leading misconceptions regarding private mortgage lending. If you agree, disagree, or have some other thoughts, please join the discussion below.
The first misconception I want to discuss is based around what types of scenarios private lenders will lend against
Private Lenders Will Finance Anything
This is a long standing myth that just because someone is a private lender they are prepared to finance any type of real estate property for any type of scenario.
To take it even a step further, there are property owners that don’t like to disclose all of their information for whatever reason and if a bank or institutional lender persists, they will withdraw their application and go to a private lender, thinking that selective disclosure is going to be ok.
In many cases, private lenders can require considerably less application information, but they certainly are going to want whatever information is necessary to understand and assess the risk of the deal.
If the deal doesn’t make sense, or the risk is too high (or too difficult to determine), the lender is likely going to pass on the deal.
It is totally erroneous to think that a private investor/lender will finance any type of deal you put in front of them.
Private Lenders Are Extremely Expensive
Another major myth or misconception is that private lenders charge outrageous rates and fees that will be difficult to afford or cash flow.
This again is pretty far away from what actually happens in the market place.
Yes, private lending rates are going to be more expensive than a bank mortgage, but that’s directly related to the risk of the deal. If the risk of loss to the lender is low, the cost of financing will reflect that and as the financing risk increases, so does the rates.
Because this is a competitive market, private lenders that price above the risk of any particular deal will stand to lose out to competitors that price accordingly, letting supply and demand balance out.
And in some cases, private lending can actually be cheaper than conventional lending alternatives once you factor in prepayment penalties on mortgage refinancing and the opportunity cost lost from not being able to secure financing on a timely basis.
Private Lenders Are Tough To Deal With
The last misconception I want to discuss is that private lenders are tough to deal with if you’re ever late with a payment or fall into a foreclosure situation.
Some people believe that private lenders will somehow take a more aggressive approach than a conventional lender when it comes to collecting their money.
In reality, a private mortgage provider has the same legal rights as any other mortgage lender and will follow very similar processes when dealing with loan defaults.
In fact, you might actually discover that a private lender is easier to work with if you want to discuss getting some extra time to make a payment, or working out a plan to bring your account up to date.
The bottom line here is that private lending is one of the simplest most straight forward forms of lending available in the market today. Private lenders work from a “make sense” point of view and for the most part are easier to work with because they do not have the type of administrative bureaucracy you can expect from a major branded lender.
Click Here To Speak Directly to Toronto Private Mortgage Lender Joe Walsh For a Free Assessment Of Your Private Mortgage Options
Mortgage Rule Changes Impact On Private Lending
“How Will The July 2012 Mortgage Rule Changes Impact Private Mortgage Lending?”
The federal government has announced that mortgage rules which govern banks and institutional lenders in Canada are going to further tighten up this July, 2012.
The main impacts are to mortgage insurance qualifications and amortization periods.
But there is also an impact now to any type of mortgage refinancing action which will be limited to 80% of the value of the property, and to high value properties over a $1,000,000 in value where the max. loan to value is now going to be 80% and not insurable.
The stated goals of these rule changes are to reduce the growth in household debt levels and to cool off some of the overheated housing markets in the country, most notably in Toronto.
While the long term impact of the proposed legislation will likely be positive to the financial health of the Canadian economy, the short term is going to be a little unsettling for those who already have high household debt levels.
These changes can potentially impact them on two levels.
First, it is going to be more difficult to qualify for a bank or institutional mortgage due to both shorter amortization periods available and a lower maximum amount of total debt servicing as a percentage of total gross income allowed for insured mortgages.
Second, you will now need more equity in your home to be able to qualify for any type of institutional home equity loan or mortgage refinancing action to consolidate debt.
The impact on private mortgage lending is that there is going to be a growing demand for both first and second mortgages in the coming years.
For debt consolidation, a private second mortgage is going to be easier to secure, and the same can be said for a new first mortgage either for debt consolidation or purchase.
And even though private financing is short term borrowing, it will provide time for homeowners to adjust their spending and overall debt levels so that they can once again qualify for bank or institutional mortgage financing.
On a cash flow basis, a private mortgage may actually afford a lower level of debt servicing to the borrower as most debt servicing requirements are interest only so even if the rate of interest is higher than bank debt, the lack of principal repayment can help to produce a lower cash flow in the short term.
There is also a wide spectrum of private money out in the market, so stronger credit and financial profiles can attract better rates which can reduce the gap between conventional and private money interest costs.
While a private first or second mortgage may not be your first choice, it may become a necessary alternative, depending on how this new rule changes impact you directly.
One of the best ways to figure out what steps to take in the short and long term with your mortgage financing is to give us a call so we can go through your situation with you and discuss different financing options available to you in the market.
Information Disclosure And Private Mortgages
“Private Mortgage Applications Will Require Different Amounts Of Information Disclosure”
Private mortgage application requirements will vary considerably from one private lender to another.
So the question often asked by borrowers is how much information should they disclose when trying to secure a private money loan?
The answer is going to vary depending on who you ask and here’s why.
Private mortgage lending is equity lending and as such, the primary criteria for providing financing is the market value of the real estate offered for security.
As a result, many private lenders are not concerned with low credit scores, higher levels of personal debt, and weak or sporadic cash flow. There are privates that will fund deals where people are in known financial trouble and where the risk of default is considerable.
But that doesn’t mean a private lender doesn’t want to know the full story from an applicant or gain full disclosure as to the borrowers credit and financial profile.
Yes, it is possible to provide less than complete information and still be granted a private mortgage.
But a lack of disclosure can also back fire if the lender finds out information withheld or denied prior to funding that they view to be detrimental to their lending position, which most likely cancel the deal.
Further, even if a lender would be ok with say a registered judgement being in place, or active collection accounts, or mortgage arrears on an existing mortgage, the fact that they either were not told about these issues, or when asked the borrower denied their existence is likely going to get the application for funding declined as well.
Most private lenders want to know the full story and from full disclosure of the pertinent information, they will make their funding decision, which is still going to primarily be based on the equity in the property.
So the best approach when applying for a private mortgage is to disclose all known financial, credit, and cash flow issues at the time of application and to honestly answer any and all questions posed by the lender, their associates, and any broker that is introducing you to the lending source.
This approach is more likely to get you what you’re looking for, and less likely to trip you up when trying to figure out what is the least amount of information you can get away with.
Private lenders are business people that invest all or part of their available money in mortgages and expect to get the funds advanced paid back. As a result there is not a great deal of stupid money out there that can be easily duped by a lack of information disclosure on the part of the borrower. Laying all your cards on the table will likely get you farther most of the time than playing an information shell game of sorts.
If you are in need of a private mortgage or want to know more about what options may be available to you, please give me a call and we’ll go over your requirements together.
Private Mortgage Debt Service
“Private Mortgage Debt Servicing Can Be Accomplished In A Number Of Different Ways”
A Private mortgage debt serving approach is going to depend on the available cash flow and how much of the available cash can be directed to loan payments.
And while most banks and institutional lenders are pretty locked into requiring fully amortized principal and interest payments, there can be considerable flexibility with a private mortgage, depending on the specific lender.
More specifically, there are three basic debt servicing structures that a private lender will consider.
The most common is an interest only payment. And even though the interest rate on a private mortgage is likely going to be higher than a comparable loan with a bank or institutional lender, on a cash flow basis, a private mortgage can be less demanding when monthly principal repayment is not required.
If cash flow will not allow for even interest only payments on a monthly basis, then depending on the amount of equity in the property, a private lender may consider prepaid interest for all or part of the loan term. Under this scenario, the interest cost for all or part of the mortgage term is added to the principal balance that will need to be repaid at the end of the term. Therefore, during the term, no cash flow payments are required.
The third option is some type of principal and interest payment. This can be based on an amortization schedule where the number of years the schedule is based on will drive the amount the monthly payment increases for principal repayment. A regular principal payment could also be a constant amount that does not vary month to month like it would in an amortized schedule.
A principal and interest payment can be a requirement of the lender if he or she believes it is important to manage their risk of loss on the mortgage, or it can be on the request of the borrower if the borrower has available cash incremental to the interest cost that they would like to apply to the mortgage during the term.
The point here is that private mortgages can be arranged to suit a number of different cash flow requirements and as a result can be a preferred lending option in the short term.
If you require a private mortgage and what to better understand your potential debt servicing options, I suggest that you give me a call so I can quickly go over your requirements and provide relevant private mortgage options for your consideration.
Private Mortgage Tips
“Here Are Some Tips To Consider When Trying To Secure A Private Mortgage”
When looking to secure a private mortgage, there are a few things that you should be aware of before starting down the path.
First, most private lenders work through mortgage brokers, so its going to be important to be working with a mortgage broker with well developed private lending sources.
Second, make sure that you are clear on the amount of money you are looking for when you apply as it may not so easy to change it later. Unlike a bank, private mortgage lenders are mostly individuals and once they agree to a deal structure, they may not be prepared to change it, regardless of the reason why.
Third, in keeping with the last point, when you get an offer of financing or a commitment to fund from a private lender, make sure you are ready to receive it and make a decision right away. Once again, unlike a bank or institutional lender, if you sit on an offer for financing or let it expire and try to revisit it in the future, there is no guarantee that the private lender will be interested or capable of funding the deal. To the last point, private lenders are always in and out of money, depending on their mortgage portfolio. When they have money to lend, they try to get it out in the market as quickly as possible as it doesn’t make any appreciable return sitting in a bank account. So if they provide an offer of financing and you don’t take it right away, there is always the chance that they will place their available funds with someone else and not have funds available for you if you come back to them a few weeks or months down the road.
Fourth, even though there are a lot of private lenders out there, you may not be able to turn around and get a similar deal if the acceptance period on a provided offer lapses. Especially when time is of the essence, an offer in front of you, even though perhaps not ideal, may be the best offer you’re going to get in the time you have to work with.
Fifth, be careful not to shop a deal around too much. Especially if you choose to work with more than one broker, there is a risk that the same deal turns up on the same lenders desk. If that occurs, there is a chance that the private lender will immediately pass on the deal as he or she only wants to invest their time in applications that they believe are ready to move forward. If they get more than one application, the standard assumption can be that the deal is all over the market place and the likelihood of placement could potentially be quite low.
If you are looking to secure a private mortgage on a residential, commercial, or industrial property for purchase, construction, refinance, or debt consolidation, I suggest that you give me a call so that I can quickly assess your situation and provide private mortgage options that meet your requirements.
Click Here To Speak Directly To Private Mortgage Lender Joe Walsh
Private Mortgage Benefits Relative To Risk
“The Cost And Cash Flow Benefits Of A Private Mortgage Are Directly Related To Risk”
As I have written previously, a private mortgage can come with a number of benefits that can make it a preferred form of financing, even for individuals that could also qualify for a bank or institutional mortgage.
Benefits such as faster approval, interest only payments, and close to conventional mortgage rates are available for lower risk mortgage financing opportunities.
Lower risk is related to lower loan to value ratios, solid cash flow, and reasonably good credit.
But when the risk of financing becomes higher, the benefits you can expect to get from a private mortgage are going to be reduced as well.
For instance, individuals with very bad credit that are looking for a high ratio mortgage on their residential or commercial property are likely going to have to deal with less than ideal private mortgage rates and terms.
In higher risk situations similar to the one described above, there is only a small percentage of mortgage lenders that will even consider these types of applications and the ones that do are sometimes called hard money lenders due to small margin of error they are working with.
For higher risk scenarios, borrowers can expect to pay higher lender fees, higher interest rates as well as have repayment requirements that include a fully amortized payment schedule for a period as short of 15 years.
In these situations, the lender is focusing in on gaining as much of the borrower’s cash flow as possible to reduce their risk of loss and to get the majority of their return at the beginning of the transaction.
Further, private mortgage lenders that will consider higher risk deals may also look to other forms of security in the form of other real estate properties, cars, jewelry, and so on.
In many cases, some of these additional items to be pledged as security may not even have much equity in them, but the overall blanketing of your available assets increases the lender’s chances of getting their capital back and reduces the borrower’s ability to acquire any more capital after the transaction is completed through further leveraging other assets.
This also translates into higher costs to the borrower as all the security registration costs will be born by the borrower.
So in order to gain many of the potential benefits that a private mortgage can offer, its important that the risk to the lender is appropriate in order for more benefits to be conveyed.
To get the most potential benefits out of a private mortgage arrangement, you need to be working with an experienced private mortgage broker who has direct access to a wide spectrum of private mortgage lenders.
Click Here To Speak Directly To Toronto Private Mortgage Broker Joe Walsh
Private Second Mortgage And Credit Repair
“An Effective Way To Quickly Improve Your Personal Credit Is With A Private Second Mortgage”
A private second mortgage is one technique that you can consider to improve your credit score provided that you have available equity in your home to support an additional mortgage.
There are a number of reasons why this can be a good option for people looking to perform a credit repair quickly.
First of all, the fastest form of credit repair where your credit score will increase significantly within a couple of months is through the paying down of outstanding revolving credit.
When you have a high utilization of credit where you are at or near the limit of your credit cards and lines of credit, your credit score is reduced to reflect a higher credit risk position.
And because a lower credit score will not likely allow you to refinance your first mortgage at a better rate, the next best option is to get a private second mortgage and use the funds to pay down the credit card and lines of credit balances.
The key is to pay down and not to close these accounts as closed accounts will further reduce the available credit which is not likely to help your credit score.
Once the balances are paid off or down, the credit score will rebound as soon as the next credit reporting cycle completes which will likely be in 30 to 45 days.
The private second mortgage itself will not show up on the credit report as private lenders do not provide borrower data to the credit reporting agencies.
Once the credit score bounces back, you may then be in a position to refinance your first mortgage to pay out the private second without having to settle for higher interest rates.
This strategy can be very effective provided that you have significant credit balances to pay down to create the opportunity for your credit score to go back up, and equity in your property to support incremental mortgage financing.
The best way to assess this strategy is to work with an experienced private mortgage broker that places private 2nd mortgages.
For more information on this approach, I suggest that you give me a call and we’ll go over your situation together and discuss potential private second mortgage options available to you.
Private Mortgage Toronto
“For Private Mortgage Financing In Toronto, Give Us A Call Today”
We provide Private mortgages in Toronto for residential, commercial, and industrial properties.
One of the great things about requiring private mortgage financing in the Toronto area is the diversity of private mortgage lenders that reside here.
When we speak of diversity, we’re really talking about a couple of different aspects of private lending.
The first area of diversity is in the types of properties that will be considered for financing. In smaller markets, certain types of properties will not attract any private lender interest due to the fact that the available private lenders either are not interested in the market risk related to the property, or can be very particular with respect to the private deals they take on due to greater demand than supply of private money.
The second area of diversity is related to rates and terms. There are private mortgage lenders in Toronto that have a very low risk tolerance and are looking for mortgage deals in 6% to 7% range where the average private mortgage rate is more like 9% to 10%.
At the other end of the spectrum, because of the strength of the Toronto real estate market, there are also private lenders that will take on very high risk deals and will price them accordingly.
So if you have a strong financial and credit profile and do not require a high loan to value ration, you may be surprised at the types of rates that are available.
The key with private mortgage lending in general is that you can gain access to private money when you require it and this something that the Toronto market can provide.
But in order to access the broadest spectrum of private mortgages in Toronto, you’re going to need to be working with an experienced private mortgage broker with existing private lender relationships so that you can quickly zero in on the most relevant options available to you in the market.
If you require a private mortgage in Toronto, I suggest that you give me a call so I can quickly assess your situation and provide private mortgage options for your immediate consideration.
Private Mortgage Debt Servicing
“Private Mortgage Debt Servicing Can Actually Be More Cash Flow Friendly Than A Bank Mortgage”
Private mortgage debt servicing can be quite different than what you might think.
For example, most people automatically assume that the higher interest rates associated with a private mortgage compared to a bank mortgage will mean that their monthly mortgage payment will be considerably higher than with a bank mortgage option.
While this can happen, most of the time the monthly private mortgage debt servicing requirements are actually less than a bank mortgage for the same principal amount.
The reason for this is that private lenders predominantly require interest only payments on a monthly basis to service the outstanding debt.
So even with a higher interest rate, the private mortgage does not require any principal repayment, making the cash flow requirement for servicing debt potentially lower than a bank alternative.
Private lenders do this because they want to maximize the interest earned on the loan while at the same time providing a cash flow incentive for the borrower to consider private funding.
In commercial mortgage situation where the amortization period for principal repayment may only be 15 years in some cases, there can be a considerable cash flow saving on a monthly basis with a private mortgage that requires interest only debt service.
For this very reason, there are times that businesses will take a private mortgage option over a bank option to conserve on cash for the short term and then refinance with a bank mortgage option after cash flow has stabilized or increased.
In situations where someone is consolidating debt and private mortgage financing is the only option due to strained or distressed credit, the cash flow saving on a private first or even second mortgage can be significant with potentially a lower interest rate compared to credit card debt being consolidated and the absence of a principal payment requirement.
If you are interested in see how a private mortgage debt servicing will impact your cash flow, I suggest that you give me a call so I can quickly assess your requirements and provide private mortgage options for your review and consideration.
Private Mortgage Prepayment
“Private Mortgage Prepayment Options Can Vary By Lender And Situation”
Private mortgage prepayment options can range from fully open to prepayment with a penalty and a variety of options in between.
For the most part, private mortgages are for a period of one year.
And the most common form of prepayment option would have a three months interest penalty attached to any prepaid amount.
But there are many variations to the prepayment conditions a private lender is prepared to accept.
At the one extreme, the mortgage can be completely closed with no ability to prepay unless the property is to be sold.
At the other end of the spectrum, even though the private mortgage will likely have a fixed interest rate for a term, the mortgage is completely open for prepayment at any time without penalty.
In the middle are a number of options that are in many cases designed to meet the needs of the borrower who is expecting to be able to repay the mortgage before the term.
One example of this would be a prepayment option that would incur a 3 month interest penalty if the prepayment occurred within 6 months of the start date of the interest term, but open with no prepayment penalty after 6 months.
There are all sorts of other examples where the lender will create a prepayment option that works for both sides and may be unique to a specific situation at times.
And because private lenders are many times individuals who make their own lending/funding rules, the options for how prepayment can be structured are truly limitless across all private mortgage lenders.
So the key point here is that if you have certain prepayment requirements in mind, you may be able to negotiate them into your mortgage contract with the private lender you would like to work with.
Regardless of any specific prepayment requirements you may or may not have, its always a good idea to be clear on what the prepayment penalty will be and how its specifically referred to in the mortgage agreement.
Click Here To Speak With Toronto Private Mortgage Broker Joe Walsh