Private Mortgages: The Alternative Way Of Refinancing
After the sub-prime crisis of 2007-08, banks and other lending institutes started to put mortgage applicants under intense scrutiny. The economic crisis that engulfed all the major economies of the world was caused because banks approved mortgage loans of those applicants who had a poor history of repaying their debts. The global markets might have recovered somewhat, the tight guidelines on who can avail a mortgage loan are still in place. Although the idea behind these regulations is to prevent another financial catastrophe, it has made owning a home a far-fetched dream for many Canadians. Faced with strict requirements from banks and other conventional lending institutions, these individuals are looking at private mortgage financiers to help them with their mortgage refinancing needs.
Who Gives Private Mortgage Loans?
Private mortgages loan are given by an investor, or a group of investors, who are looking at a higher return on their money. Private lending companies that ask for minimal documentation also hand out mortgage loans to people who cannot avail the mainstream mortgage loans. Private mortgage lenders have relatively lesser requirements to qualify for a loan, which enables a lot of people to avail them.
Why Apply for a Private Mortgage Loan?
Private mortgages loans work out for people with bad credit scores, and also for those who cannot wait for the long time banks and other conventional lenders take to review the mortgage application. Generally, private mortgage lenders complete the loan application process within 10 to 15 days – a stark contrast from the 60 to 90 days it takes banks to go through the application. One of the prime reasons for this is the fact that banks and other lenders look at factors such as the credit history of the applicant, the appraised value of the property that is to be financed, borrower's current financial state, etc. On the other hand, private mortgage lenders look at only the appraised value of the property to be financed while reviewing the loan application. They use the appraised value of the property as collateral for the loan.
What are the Drawbacks?
If getting a private mortgage loan is so easy, then why do people go through the tedious process of obtaining one from a bank? Well, the reason for this is the fact that interest charged on a private mortgage is exorbitantly higher than a mainstream mortgage loan. It is not uncommon for people to pay a 20% interest rate on a loan financed through a private lender. Secondly, private mortgage lenders do not offer loans for a long term; they usually offer loans for a term of three years.
Although private mortgage lenders do not intensely scrutinize an individual's credit history, they look at certain factors before they approve a loan application. Some of these are the type of property, income potential of the property, and the exit strategy on the property – whether the property can be refinanced or not.
Due to the strict regulations on part of the banks, it can be said that private mortgage loans are here to stay. They are a ray of hope for a lot of individuals and entrepreneurs who cannot avail conventional loans. However, you should brace yourself for high interest rates and lower terms before applying with a private mortgage lender. As most of these loans are carried out with private lenders, negotiation plays a very important part in determining the rates that you get. Do some research, or take the help of a mortgage broker to get the best rates.
Who Gives Private Mortgage Loans?
Private mortgages loan are given by an investor, or a group of investors, who are looking at a higher return on their money. Private lending companies that ask for minimal documentation also hand out mortgage loans to people who cannot avail the mainstream mortgage loans. Private mortgage lenders have relatively lesser requirements to qualify for a loan, which enables a lot of people to avail them.
Why Apply for a Private Mortgage Loan?
Private mortgages loans work out for people with bad credit scores, and also for those who cannot wait for the long time banks and other conventional lenders take to review the mortgage application. Generally, private mortgage lenders complete the loan application process within 10 to 15 days – a stark contrast from the 60 to 90 days it takes banks to go through the application. One of the prime reasons for this is the fact that banks and other lenders look at factors such as the credit history of the applicant, the appraised value of the property that is to be financed, borrower's current financial state, etc. On the other hand, private mortgage lenders look at only the appraised value of the property to be financed while reviewing the loan application. They use the appraised value of the property as collateral for the loan.
What are the Drawbacks?
If getting a private mortgage loan is so easy, then why do people go through the tedious process of obtaining one from a bank? Well, the reason for this is the fact that interest charged on a private mortgage is exorbitantly higher than a mainstream mortgage loan. It is not uncommon for people to pay a 20% interest rate on a loan financed through a private lender. Secondly, private mortgage lenders do not offer loans for a long term; they usually offer loans for a term of three years.
Although private mortgage lenders do not intensely scrutinize an individual's credit history, they look at certain factors before they approve a loan application. Some of these are the type of property, income potential of the property, and the exit strategy on the property – whether the property can be refinanced or not.
Due to the strict regulations on part of the banks, it can be said that private mortgage loans are here to stay. They are a ray of hope for a lot of individuals and entrepreneurs who cannot avail conventional loans. However, you should brace yourself for high interest rates and lower terms before applying with a private mortgage lender. As most of these loans are carried out with private lenders, negotiation plays a very important part in determining the rates that you get. Do some research, or take the help of a mortgage broker to get the best rates.
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