When a mortgage with a traditional lender or an alternative lender is just not the right fit, you may consider a private mortgage. To begin, here are some details on private mortgages and private mortgage lenders in Ottawa.
Contact me to find private mortgage lenders in Ottawa
What is a private mortgage?
Most mortgages require evidence that you can repay them. To prove this, lenders are interested in your income and credit score. If your income, credit score and debt to income ratio are favourable then you should be approved for a mortgage with a traditional lender.
However, the approval process with traditional lenders can be time-consuming. Even those with favourable finances can find the process takes a few days. The timelines usually entails the lenders review, documents review, an appraisal and so on.
Private mortgage lenders in Ottawa base their lending more on the collateral, and the lenders are less focused on a your current finances.
Private mortgages are typically offered for shorter term such as one or two years. There are also open options available. The shorter terms can assist in providing more opportunities to reevaluate your financial situation. With future reviews, we can see if there is an opportunity to move you to a more favourable lending solution. That solutions being one with a potentially lower interest-rate. With an open mortgage, you can pay it off at anytime without a penalty.
Also, as private mortgages typically come with higher interest-rates it is best to not carry the debt for a long period of time.
Why get a private mortgage?
Even with a higher interest rate private mortgage lenders in Ottawa still do have their benefits, here are a few of these benefits:
- Flexibility: Private mortgage lenders can do interest only mortgages. Also, some can offer amortizations up to 40 years. This longer amortization can help reduce the regular payment. Some lenders can also work the payments into the total mortgage. This way you do not have to make any regular payments out of pocket.
- Turn around time: Private mortgage lenders typically focus more on collateral and less on the clients strengths. Because of this, the application process is much more streamlined then with traditional banks. As well, some lenders do not need to do an appraisal.
- Approval: Private mortgages can help those who have taxes in arrears, previous bankruptcies, negative credit history and high debt to income ratios. Also, those with debt in collections and other challenges with finances. Private lenders can also finance up to 85% of the value of the property. Traditional lenders can go up to 80%.
When is it a good idea to get a private mortgage?
A private mortgage makes sense as a mortgage for the short term. For example, for those flipping properties or who need to pay some debt or borrow money in a timely manner.
Reasons behind getting a private mortgage certainly change from person to person.
What are the downsides of a private mortgage?
The downside of a private mortgage typically is the cost associated with setting up and carrying the mortgage. Private mortgage lenders typically have fees. Also, an appraisal is usually needed as well as a lawyer.
Private mortgage lenders in Ottawa – 4 important points
Here are 4 important points to consider when looking to private mortgage lenders in Ottawa.
A private mortgage can help protect the rate and terms of your first mortgage:
One main challenge with refinancing your current mortgage, if your lender cannot do a blended rate, is that your rate may increase substantially on your entire mortgage. This is because refinance rates are now higher than purchase and renewal rates, under the new mortgage guidelines. If you only need an extra $20,000 for example, it would be unfortunate to see your entire mortgage change to a higher rate.
As a caution, the rate on the private mortgage will be higher however then typical traditional lender rates. Private mortgage rates usually range from 8.99% to 12%. The terms can be open, a 1 year term and so on. Also, some private mortgages are interest only with the ability to pay more on the maturity date. Others you can make principal or interest only payments throughout the term.
Although 8.99% or more may seem high, if you are consolidating credit cards at 21% to 22% your rate would now be less then half with the private mortgage.
A private mortgage may be easier to qualify for:
If you cannot qualify to borrow more funds with your current lender or cannot be approved due to outstanding collections, CRA tax owing, debt servicing ratios too high, poor credit history and so on, a private lender may have more flexibility with assisting in these situations.
Private mortgages typically can go to a higher debt to income ratio and work with those with credit challenges.
You may be able to borrow more with a private mortgage:
The private mortgage amount available is based on the appraised value of your home in Ottawa. Typically with your current bank or lender, you can refinance up to 80% of the value of your home. Some private mortgage lenders can go up to 85% of the value of the home which may allow you to access more funds if needed.
You may not have to pay anything out of pocket to set the mortgage up or for the ongoing payments:
Some private mortgage lenders in Ottawa can work the costs and payments into the loan allowing you access to the funds with no money out of pocket up front and no payments throughout the year, to help those with current cash flow challenges.
Private mortgages come other fees. However if borrowing over 80% of the value of the property, mortgage insurer fees (ie CMHC) will not be applicable.