Category Archives for Private Mortgage
Private Mortgage Parachute
“A Private Mortgage Parachute Can Save You From A Bank Financing Deal Gone Bad”
There are times when a private mortgage option can be your best friend.
And while it may not have been your first or primary choice of financing, in the end it can come through and save the day for a lot of “A” quality lenders.
Let me explain.
One of the challenges with securing cheaper forms of money is that there can be a lot of requirements that go along with the commitment to finance.
And even if the borrower has every intention of meeting all those conditions, there are times when life conspires against you and puts you into a position where the money needs to be advanced but can’t because someone hasn’t done something yet or something hasn’t happened that was supposed to happen by now.
When an “A” lender gets into this situation, then it comes down to which is the lesser of the evils? That is, do I go and get myself a slightly more expensive private mortgage option in case things don’t get figured out in time, or do I risk what can happen if I don’t meet my deadlines?
The risk of what could happen can vary considerably.
For a real estate transaction, you could miss out on the opportunity to purchase a property at a great price.
For a construction project, you could risk having the project stall out and end up breaking contracts with builders and suppliers and others.
For a business man that needs capital to fund a transaction, the risk is losing out on the margin in the deal and potentially destroying your credibility for future dealings with that customer as well as the bad well they may spread about you.
When real estate financing is involved, if the bank or institutional solution is taking too long to get into place, or there is some snag that is not allowing it to proceed, then the next best step is to go and get a private mortgage option lined up that can solve the problem.
Then, if you get to the point that time is about to run out, you can pull your private mortgage parachute and get things completed for a few extra dollars, which is likely going to be cheap compared to the costs and/or lost opportunity of not getting the bank financing closed in time.
This is just a sound business and financial management practice where the right decision is typically going to be the next lowest cost option.
If things do work out with plan “A”, then you carry on as planned and don’t exercise the private mortgage option you have arranged.
Either way, the deal or transaction or whatever can proceed as planned without further disruption or delay.
If you find yourself in a bind trying to get financing completed regarding a real estate transaction, please give me a call as soon as possible so I can quickly assess your situation and provide you with private mortgage financing options for your immediate consideration.
Aurora Private Mortgages
“Aurora Private Mortgages Available For Residential And Commercial Properties”
Aurora private mortgages can be secured directly from a private mortgage lender, but for the most part, this type of financing is located through the use of a private mortgage broker that works with area lenders.
The private lending market predominantly works through mortgage brokers to place their funds in the market place, asking experienced mortgage brokers that understand the lender’s requirements, to bring them prequalified deals to assess for funding.
In many cases, the private lender will not even want to meet directly with the borrower and instead asks the mortgage broker to manage all the communications and loan administration requirements.
The private mortgage lender still is the absolute decision maker to any deal, but the path to locating and securing private mortgage funding can many times be a two step process through a private mortgage broker.
We are fortunate to work with a large under of private mortgage lenders that prepared to consider a wide range of private money loan applications on both residential and commercial real estate.
The key for getting the best deal or best fit with a private mortgage is to be connected to a private lender where both the lender’s and borrower’s needs can be met at the same time.
This is not always going to be the case from one private lender to another as each will have their own lending criteria and real estate market areas of interest.
For Aurora private mortgages, the best place to start is with an experienced private mortgage broker than not only works with private lenders that fund deals in the area, but that also has a track record for placing similar deals.
Once again, the goal is to get you matched up as quickly as possible with a private lender that will be interested in your specific financing requirements and can provide a funding offer within a range you are prepared to accept.
In several instances, time can be of the essence, so its important to be working with a private lender that can help you right away so that you don’t have to waste time restarting the process from one lender to another.
If you’d like more information on Aurora private mortgages, or would like to get a mortgage in place right away, I suggest that you give me a call so we can quickly go over your requirements and review potential options that meet your needs.
Richmond Hill Private Mortgage
“Richmond Hill Private Mortgage Financing Is Available Through Our Private Lending Partners”
A Richmond Hill private mortgage is something that can be put in place through one of the private lenders that I deal directly with.
Our private lenders will consider financing a wide variety of real estate property types including, residential, commercial, and industrial properties.
Being that a private mortgage is an equity loan for the most part, the focus of the private lender is going to primarily on the equity you have or will have in the real estate, and secondarily on cash flow, credit, and your exit strategy to repay the mortgage at the end of the term.
Most Richmond Hill private mortgages that we place are for a period of one year, but a period of more than one year may also be possible, depending on the specific lender.
The application of funds can include but are not limited to property acquisition, mortgage refinancing, debt consolidation, or construction financing. In most cases, while a private lender will be interested in knowing what the use of funds are, it rarely becomes an issue with respect to whether the deal is funded or not.
A Richmond Hill private mortgage can be issued as a first, second, or even third mortgage in some cases.
In cases of debt consolidation, a private second mortgage is very common when there is an institutional first mortgage in place that is in good standing.
If you have a piece of commercial real estate that you’d like to finance, recent environmental audits and/or commercial property appraisals may be sufficient to the lender versus having to get everything brought up to date before a final lending decision can be made.
Interest rates will vary according to the risk associated with a given property and can range considerably from one application to another. Just keep in mind that the stronger the market value of the property and the lower the loan to value requested, the lower the available interest rates will be.
If you need to get a private mortgage in place quickly for a Richmond Hill property, a fast mortgage closing can be completed from application to funding within two to five business days provided that everything is in order.
In general terms, the private mortgage process from application to funding takes approximately ten business days.
If you’re in need of a Richmond Hill private mortgage, or would like to better understand your options, I suggest that you give me a call so that we can quickly go over your requirements together and discuss private mortgage financing alternative that can meet your needs.
Private Mortgage Lenders Ontario
“Private Mortgage Lenders In Ontario Are More Concentrated In Major Centers”
Private mortgage lenders in Ontario are more concentrated around the major population areas such as Toronto and much of Southwestern Ontario.
The majority of private mortgage lenders I work with primarily place their money in the Greater Toronto Area.
This certainly is not to say that private mortgage financing can’t be secured in other areas of the province, or in other parts of the country, but for those individuals and/or companies that own property in SW Ontario, there is a very good chance that a private mortgage lending option will be available to you.
Part of the reason for this heavier concentration of private lenders is directly related to the concentration of the population in this area. But perhaps an even bigger reason for the interest in private lending in the area is the strength of the Toronto real estate market.
Being that private mortgage lending is an equity investment for the most part, the strength of the underlying market provides lower risk lending opportunities to lenders on average in that if a private mortgage goes go into foreclosure, there is a good chance the property will be liquidated for an amount that will be able to retire the mortgage outstanding.
The other advantages of the Southern Ontario market place with respect to private lending is that, on average, more types of properties will get consideration for private lending, and private lenders will consider higher loan to value ratios on lower risk properties as well.
In more remote areas, the private lenders that are interested in a particular geography are going to be more selective and conservative due to the lower level of general real estate market activity.
One of the many advantages of private mortgage lending in Ontario is that many different risk levels can be covered off with higher risk properties commanding higher rates and lower risk properties attracting lower rates.
This can break with the convention that private money is always significantly more expensive financing than what you can secure at a bank or trust company.
For solid real estate properties where the loan to value is no greater than 50%, private mortgage financing in parts of Ontario can revival what banks and other institutional lenders are offering, especially on commercial properties.
While there can be a number of lenders to choose from, there can also be pricing disparity in the market where you can find yourself paying more for a private mortgage than what might be available in the market if you know where to look.
This is where the services of a private mortgage broker can save you a considerable amount of money and time by getting you connected to the most relevant sources of private mortgage financing for your particular requirements.
Private Mortgage loans
“What Is A Private Mortgage Loan And How Can I Get One?”
Private mortgage loans are loans issued by private individuals, investor groups, or mortgage investment corporations and secured by real estate via registered mortgage security.
There are basically two groups of mortgage lenders out there. The largest and most commonly known group comprise banks, trust companies, credit unions, life insurance companies, and other institutional lenders. The second group is comprised of the different types of private lenders mentioned above.
The form of security being taken in both cases is exactly the same from a legal registration point of view, and rights of the borrower and lender, which may have some differences from legal jurisdiction to legal jurisdiction.
The connotation of private mortgage loan is a mortgage lending facility provided is not from an institutionally based lender which is really the major difference between the two.
The private mortgage loan commitment itself is likely going to be significantly different than the standard bank mortgage commitment as most private mortgages are only for a term of one or two years with not renewal options in many cases.
A private mortgage loan is effectively an equity based loan whereby the private lender is making a lending decision primarily based on the value of equity in the property.
In most situations, although not all, a borrower will require a private mortgage loan if some combination of their cash flow and credit profile prohibits them from qualifying for a bank or institutional mortgage.
The private lender, while also concerned with cash flow and credit, do not have the same linear qualifying rules that an institutional mortgage lender would have and can apply a considerable amount of personal discretion being that most private lenders are individual investors.
In cases where cash flow and/or credit are in considerable distress, a private mortgage can still be acquired, but the loan to value can be reduced to allow for the higher lending risk to the private lender.
In terms of accessing private money, most private lenders do not have a retail presence and instead to work through either an individual private mortgage broker, or broker networks to provide them with qualified deals to consider for funding.
If you’re in need of a private mortgage loan, or would like to learn more about them, I would recommend that you give me a call so that we can go over your requirements together and discuss potential private mortgage loan options applicable to you.
Alternative Mortgages
“Which Alternative Mortgage Financing Strategy Should You Use?”
If you’re in a situation where you need to secure a mortgage and you haven’t been able to qualify with a major bank or “A” credit institutional lender, then you’re next step is to look at alternative mortgage lending options.
For most people, the next logical step would be to go to one of the alternative institutional lenders available in the market and if that didn’t work out, continue on to private mortgage lending options.
But this may or may not be the right order to approach these alternative mortgage lenders.
Depending on the client credit profile, the quality of the real estate security, and the loan to value required, private mortgage lending rates may be comparable, and sometimes even better than a sub prime lending rate through an institutional lender.
Not only that, but may of the sub prime institutional lenders will provide alternative mortgage with fixed interest terms of three to five years. The prepayment penalties on these mortgage can be very steep which can make them difficult to get out of if you are able to improve your situation and move to over to a lower cost “A” lender.
Especially in cases where a borrower is just missing qualifying with a bank, the best short term solution may very well be a one or two year private mortgage where the prepayment penalties are typically no more than 3 months interest and some private mortgage can be completely open after a certain number of months have passed in the loan term.
Some of the alternative mortgage options provided by institutional lenders have expanded recently to provide more flexibility to the borrower and can also be a great fit for your situation.
Its just not always going to be an automatic decision as to which source of alternative mortgages and which specific program is going to be the best fit for your requirements.
The best way to figure this out and not end up paying higher the necessary interest rates or prepayment penalties is to work with an experienced mortgage broker who can review all the potential options with you and help you decide which route to take.
Private Mortgage Lending Terms
“How Long Are Private Mortgage Lending Terms?”
Private Mortgage lending terms can vary no different than any other type of mortgage that is issued in the market place.
But, in most cases, a private mortgage lending term is for a period of one year only.
There are a number of reasons for this. Let’s go over a few of them.
First, many private lenders charge an interest rate and a lender fee on closing of the mortgage. The combination of the two provide their annual targeted rate of return on their money invested in private mortgages. If a mortgage goes for more than one year, there can be a renewal fee required at the annual renewal period to extend the mortgage in order to maintain their targeted rate of return.
If a mortgage is issued for multiple years without any sort of lender fees either only at closing or at closing and renewal, then the annual return to the private mortgage investor is going to be lower.
This is also not to say that all private lenders charge lender fees. Some don’t and are content with a lower return on investment. But this is the minority in the market and they will only tend to provide lower rates on very low risk real estate.
Second, many private lenders invest in private mortgages to keep their investment portfolio more liquid. By having all or part of their portfolio in one year private mortgages, they are always in a near case position which will allow them to take advantage of whatever opportunities are available to them most of the time.
Third, private mortgages are typically, although not always, placed in situations where some combination of credit and cash flow are distressed. For these types of private mortgage placements, the risk of loss is going to be higher the longer the mortgage is outstanding.
The short mortgage term requires borrowers to either improve their ability to secure bank or institutional financing or work towards marketing the property in order to retain as much of the equity in the property as possible.
All that being said, there are still private mortgage lenders that provide mortgage terms of three to five years in length.
Once again, they are in the minority, and will also have some type of motivation to provide a longer mortgage term.
For instance a seller of a property may provide a vendor mortgage of 5 years or more to the buyer to provide the buyer with all or part of the financing required to complete the purchase. The longer interest term is put into place to facilitate principal and interest repayment.
Most one year private mortgage lending terms are also interest only debt servicing. But this is not always the case either.
Some private lenders will allow principal repayment if requested by the borrower, and some will require it so that the loan amount is getting reduced and reducing the risk of loss.
If you’re in need of private mortgage financing, I suggest that you give me a call so I can quickly go over your requirements and provide private mortgage options for your immediate consideration.
Private Mortgage Rates
“Private Mortgage Rates Will Vary According To Risk And Competition”
Private mortgage rates can vary considerably depending on a number of different factors, similar to bank or institutional mortgage lending.
The interest rate offered and charged for the use of private mortgage funds will first of all depend on the risk of the deal. If first mortgage security is being offered to the lender and the loan to value is relatively low, then better rates are going to be offered and available compared to mortgage security in second or third position with high corresponding loan to value ratios.
As a very general rule, private first mortgages will range from 7% to 10% for most first mortgages, and from 9% to 14% on most second mortgages.
While bank or institutional lending rates move with the bond market or the central bank’s over night rate, private mortgage rates stay fairly stable with the above ranges holding true even with a one or two percent change in the commercial lending rates.
What is different about private mortgage interest rates compared to those from a bank is that the level of competition can vary more dramatically for one area to another for any given property.
Private lenders tend to operate very regionally and some will have a very narrow focus on the types of properties they will be prepared to lend on.
As a result, there can be times when there can be a limited interest in a deal due to a lack of available lenders, which can cause lenders who are active in the market to charge more to the higher level of the rate range.
Conversely, if there is a lot of competition among private lenders within a certain area for certain types of properties and loan requests, the private mortgage rates can be very competitive and in some cases come close to rivaling what the local banks may be offering on a similar deal.
While not always the case, most private lenders will charge a lender fee on closing of anywhere from 0.5% to 3.0%, depending on the lender and the deal. These lender fees do increase the effective cost of borrowing and need to be factored in with the stated interest rate to ascertain a true cost of capital.
Most private lenders will only provide commitments for one year terms, and if a borrower requests a renewal for an additional year, a renewal fee may be charged as well by the private lender.
Also remember that because private lenders are mostly individual investors who are in and out of the market based on available cash, there can be significant differences in the private mortgage rates being offered on the same property from one lender to the next.
In order to secure a solid private mortgage rate at any given point in time, you’d be well advised to be working with a private mortgage broker who has broad access to the local market where the property offered as security is located.
If you’re in looking for a private mortgage rate quote in Southwestern Ontario, I suggest that you give me a call so I can quickly assess your requirements and provide you with some options for your immediate consideration.
Click Here To Speak With Private Mortgage Broker Joe Walsh For A Private Mortgage Rate Quote
Private Funding Exit Strategy
“A Private Funding Exit Strategy Can Be Key To Attracting The Best Private Mortgage Options”
A private funding exit strategy for a private mortgage is basically a defined plan for repayment of the mortgage at the end of the interest term.
In most cases, private mortgages are only for a period of one year, so the private lender will require an exit strategy to pay back the principal that has been advanced.
And while private lenders mostly make their lending decisions based on the equity in a property and the property’s overall marketability, an exit strategy already in place can many times make or attract more competitive private mortgage funding offers.
For smaller deal sizes, lets say under $200,000, the lender’s exit strategy is typically going to be full repayment from the borrower through the borrower’s own arranged means, or default foreclosure where the lender is taking the property through a power of sale process to get his or her money back.
But as the deal size gets larger, there is more risk to the lender to just rely on borrower repayment or the right to foreclosure to get back everything that’s owed.
This is where a more detailed and prearranged exit strategy can not only attract better private lending offers, but potentially get the deal funded in the first place.
For instance, say that a builder wanted to borrow $500,000 for one year to build two houses that he had already pre sold to well qualified buyers.
This would potentially represent a very solid exit strategy as at the end of the mortgage term, the construction would be complete and the proceeds from the sale of the homes would go directly to the lender to repay the mortgage.
Another fairly solid exit strategy would be where the borrower requires a private mortgage to save the equity in their home. In this scenario, lets say that the borrower has decided at the time of getting a private mortgage that its going to be unlikely that he will be able to arrange an institutional mortgage at the end of the private mortgage term to repay the lender.
So at the time of application for financing with private mortgage investors, the borrower states that immediately upon securing the mortgage, the borrower will put the properly up for sale in order to salvage the equity in the property as soon as possible.
For a private lender, this could once again be a very solid exit strategy as the borrower is going to have a year to market and sell the house through a conventional sales process which should be completed before the end of a year.
Once again, the larger the financing request, the more likely an acceptable exit strategy is going to be required from a private lender to do the deal.
If you’re looking for a private mortgage, or would like to know more about suitable exit strategies that can attract a private lender, please give me a call and I’ll make sure you get all your questions answered.
Cash Flow Benefit To Private Money
“Private Money Can Actually Help To Improve Your Cash Flow”
Private money lending through a private mortgage typically only require interest only payments to service the debt on a monthly basis.
What that means is that during the term of the mortgage, you are only going to be paying the interest incurred each month with no amount of principal repayment required.
While this does not allow you to reduce the balance of the mortgage, it does allow you conserve on the cash flow that otherwise would be required to pay down the mortgage balance.
Depending on the length of amortization payment you were paying on a mortgage that was refinanced by a private mortgage, or the amortization period for a B or C institutional lending option, the monthly saving to cash flow can be considerable.
Even in situations where the amortization period is quite long, the lack of required principal repayment can offset the higher cost of private money making a switch to a private mortgage very close to cash flow neutral.
Too often borrowers get hung up on interest rate without considering cash flow as well.
If you take the example of a new business or expanding business purchasing a commercial property where cash flow may be tight for the next couple of years, a one or two year private mortgage may provide positive cash flow relief as well as time for the the business to get its financial performance in order so that it can qualify for a lower cost bank or institutional mortgage in the near future.
Then, even if the institutional commercial mortgage has a higher monthly debt serving requirement due to amortization period, the business will have had time to plan for it and will be in a more stable cash flow position that will allow repayment of the principal balance.
The same can be true of securing a private second mortgage or a new first mortgage from a private lender to consolidate debt.
The interest only payment required by the private mortgage lender may be considerably lower than the collective payments you were making on all the consolidated debt.
In many cases where mortgage financing is required, cash flow is a very important factor which may effectively be solved through a private mortgage on residential, commercial, or industrial property.
If you’d like to work through a mortgage financing scenario and the related cash flow implications, I suggest that you give me a call and we’ll go through all the math together.