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.