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.