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Private Mortgage In Montreal
What is A Private Mortgage?
A private mortgage refers to a loan taken from an individual or business that is not a conventional lender. Private mortgages usually have a short term of 1-3 years and require the borrower to pay only interest. Getting a loan from a Montreal financial institution can be difficult for people who are unable to meet the conditions. These group of individuals resorts to private lenders who have mortgage packages tailored to the peculiar needs of their customers. Homeowners who go for private mortgages don’t pay an enormous down payment, all that is required is a monthly interest payment.
Why Go Private?
In Montreal, private lenders fill the huge vacuum left by the conventional lending institutions. These private lenders are aware of the ability of many prospective homeowners to pay back their mortgages, notwithstanding their credit rating or type of employment. To qualify for a mortgage, a private lender will check the market value of the property and its marketability. Whereas traditional financial bodies are rigid in their lending terms, and if you don’t meet their stringent loan conditions, you won’t be given any money to finance your home purchase.
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Types Of Private Mortgage Lenders
There are three types of private mortgage lenders.
- Individuals: This is someone who lends out money with the hopes of getting a profit in the form of interest.
- Syndicate: This consists of a group of people who gather funds which are invested in different projects.
- Mortgage Investment Corporation: This is a group of individuals who pull their monies to finance many projects simultaneously.
Who Can Take A Private Mortgage?
Here are some of the reasons why you can consider taking a private mortgage if:
- You have a bad credit rating which disqualifies you from getting funds from conventional lenders.
- You want to buy a building which a traditional lender won’t fund.
- You need a short-term loan
- You need the funds urgently and can’t wait for the long approval process.
- You can’t get a conventional mortgage because your income is unconfirmable.
Qualifications For A Private Mortgage
Before giving you the loan, a private lender will carry out some assessments to determine your eligibility for the mortgage. The criteria for qualification include the type of property, property value, income, down payment, equity, and LTV. The LTV on a property is calculated by dividing the outstanding mortgages on a property by the present market value of the property. The lower the LTV, the higher your chances of getting the funding. In fact, LTV above 75% will make the mortgage harder and more costly.
Rates And Fees Of Private Mortgages
Even though private lenders have more mild conditions than conventional lenders, their interest rates and fees are far higher than that of the traditional lenders. Below are the rates, fees, and terms of private mortgages:
Interest rates: Private lenders charge an interest rate of 10%-18% of the mortgage value. Compared to traditional lenders, these prices are outrageous.
Fees: Private mortgage costs can range from 1%-3% of the mortgage amount, and this includes broker fees and setup fees.
Terms: Private mortgage terms on second mortgages can be from 1-35 years.
Time of Approval
A private mortgage doesn’t take much time. The approval process can be completed within one week, and the fund will be released in 2-3 weeks’ time.
If you wish to buy a home in Montreal and fall in the category of people who don’t qualify for mortgages from conventional lenders, your best alternative is the private mortgage. But remember that the rates of private mortgages exceed by far that of their traditional counterparts. It should only be used when every other option has been exhausted. Talk to a mortgage broker in Montreal about it today for more details.
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Montreal Mortgage Frequently Asked Questions
What is a Mortgage Term?
The loan that you make to buy a house or some other property is called a mortgage. The principal refers to the amount borrowed. Each mortgage payment pays off part of the principal plus the interest.
You have custody over the property. However, if you fail to pay the loan and interest according to the terms of the contract, the lender may repossess the property.
What is a Down Payment?
A down payment refers to the money you pay for real estate property. This money is paid upfront and the rest of the cost of your new home is covered by your mortgage. For properties that cost up to $500,000, the minimum down payment in Canada is 5% – however, do take note that your lender may sometimes require a higher down payment.
But what if the cost of the property is more than $500,000? If that is the case then the interest is 5% for the first $500,000 and then 10% for the remainder of the cost.