Is A Private Mortgage Right For You?
As a result of various factors in the real estate and the mortgage market, private mortgages are becoming an attractive option for many homeowners and potential homeowners.
This blog will outline key differences between a private mortgage from a traditional mortgage, potential advantages and disadvantages, and the importance of obtaining proper legal advice when one has decided on going the private route.
Differences Between Private and Traditional Mortgages:
At its core, a private mortgage is not much different from a traditional mortgage - both offer loans by securing the lender’s interest on a property. However, unlike traditional mortgages, private mortgages are not federally insured by entities like the Canada Mortgage and Housing Corporation (CMHC), which means that they carry additional risk for both the borrower and lender. Private mortgages also have fewer regulations and oversight compared to traditional mortgages. As a result of having fewer regulations, this can result in certain advantages and/or disadvantages for private mortgages.
Disadvantages of private mortgages:
Fewer regulations, which can result in higher interest rates, additional conditions to satisfy, etc.
Shorter loan terms
Higher fees - lender fees, broker fees, admin fees, etc.
Potential for predatory lending practices by private lenders
Advantages of private mortgage:
Equity- based rather than income based: Private lenders are more interested in the value of your property rather than your income or your financial history.
Easier qualification process, faster approval process and funding timelines: Due to fewer regulations, private lenders are able to have shorter application and approval processes and could fund loans faster.
Flexible terms and conditions: Due to fewer regulations, private lenders could tailor payment plans, conditions for funding, etc., depending on the needs of the borrower. This could include temporarily reducing or deferring payments, or extending the term of the loan.
How we can help:
Private mortgages can vary greatly in their terms and conditions. Therefore, it is imperative that you work with a qualified legal professional to help guide you through this intricate process. An experienced real estate lawyer in private mortgages will help to review and explain the terms of the mortgage commitment, communicate with the lender’s lawyer regarding any potential red flags, and work towards the closing of the transaction in a seamless fashion.
At Realty Care Law LLP, having worked extensively with a large private lender in the industry, I am also able to provide my clients with the lender’s perspective. This is invaluable when working on difficult transactions, and/or helping clients avoid potential delays and holdups to close transactions on tight timelines. We have a group of experienced real estate lawyers who can help borrowers with private mortgage transactions. My practice in the past few years have focused on private lending - reviewing private mortgage commitments, the terms and conditions, and overall guiding borrowers throughout the entire process.
If you have questions related to private mortgages, please reach out to me directly and I would be more than happy to chat! Contact us here!
Author:
Rina You
Partner
e: ryou@realtycarelaw.com