Most of you may have already heard the term private mortgage through your mortgage broker. A private mortgage is traditionally used for people with bad credit history and cannot be approved for a mortgage through traditional ways for some reason or if you need a little more flexibility around your mortgage than that offered by traditional lenders or financial institutes like banks. With increasingly stringent regulations being imposed around potential homeowners, it has become evident that many homeowners need to seek alternative sources of borrowing as many of them may not have a guarantor or can’t afford high-interest rates that accompany the borrowing. For instance, the new set of rules imposed by the Federal Government in October 2016 has been used as a prime example to depict how private mortgages can accommodate private lending and prove to be a great option for many people.
Applying for a Private Mortgage
Before applying for a private mortgage, it is necessary to do a little shopping around to understand the options you can work with. Meet and discuss with several private lenders about the terms, interest rates, and tenures before finalizing with someone. Although private lending is not risky, not checking for your private lender’s authenticity, not reading about their company, or not going through reviews can put you at some risk. Every private lender you meet is bound to have a set of their own stipulations and regulations. You need to weigh your options before deciding which route is the most suitable for you.
The advantages of having a private mortgage
With more people shifting to contract positions, temporary jobs, working as consultants or not having a traditional 9 to 5 source of income, they may not have all or one of the necessary qualifications for a big down payment, T4 or strong credit history. This minimizes their chances of getting a favourable deal from big banks. With private financial mortgages, it can be advantageous for anyone who falls in the category of:
People who wish to rebuild their credit
Applicants who may be owing taxes that are in arrears
People who are looking to flip a property
People who are looking for equity, for instance, to start another business
When it comes to private lending, the chances of finding a suitable deal for your purpose are high, especially if you fall under any of the above-mentioned categories. However, just like any other lending options, private lending comes with a set of caveats. For instance, if your property appears to be non-appealing, your private lender may still refuse to lend in spite of other matching parameters. Another thing to note is that, unlike traditional banks who pay fees to the broker, with private lending, you may have to bear the fees which could be 1 to 5% of the private mortgage amount. You will have to negotiate your lending rate beforehand.