5 Questions to Ask Private Mortgage Lenders

A private mortgage can be your best option in a time of need. Perhaps your home needs to undergo renovation, pay for your daughter’s wedding, or you need a down payment for a new car? Whatever it may be, the process to acquire a mortgage through private mortgage lenders is painless and is not hindered by a bad credit score or insufficient established credit.

Typically, a private mortgage loan, while sometimes used for purchases, is mostly used as a secondary mortgage loan. Private lenders are willing to take on elevated risk when other financial institutions may be wary to do so, since banks are hesitant to compound mortgages on an individual. You can expect to receive your loan from a private mortgage lender within a few days, however other institutions may transfer the funds same day.

Ready to sign up for a private mortgage? See how here.

What are private mortgage lenders?

While it may seem that a mortgage from a bank or a private lender may be the same, there are differences that you should be aware of. For instance, while a bank mortgage exists within the framework of governmental & banking policies, as well as the money coming from the bank itself. However, for a private lender, the money comes from an investor or a group of investors.

Banks usually look at three factors when qualifying you for a mortgage: your credit, your employment history, and your account balance. Private lenders differ as they are generally more concerned with the value of your property as it can be used as collateral. Private loans should be seen as short-term investments and is advised to not let it linger as debt as it will affect your credit score.

Things to Consider

It is important to remember that a private loan should be used as a ‘stopgap,’ or a temporary financial solution. Be warned, private mortgage lenders typically have higher interest on loans than from an accredited financial institution such as a bank. You also need to be aware that you are responsible for all fees, from broker fees to possibly a lawyer, as well as lender’s lawyer too, if necessary.

Another thing to ask yourself is how long will you be needing the loan? If the answer is longer than a year, you may want to consider whether it may be best to opt for a loan from another source as private mortgage lenders rarely tie themselves to a mortgage for more than a year.

Questions to Ask Your Private Lender

It is important that you gather critical information from your lender before you sign into a new mortgage.  Here five questions you should keep in mind:

  1. What are the lending terms?

This may include private mortgage interest rates, consequences for defaulting on your loan, and how often you will be expected to make payments. You should also consider what it would cost to leave your agreement early.

  1. What are the associated fees and costs?

Your private mortgage lender is obligated to describe to you any and all costs associated with your loans.

  1. Are the legal fees out of pocket, or can they be placed into the size of the loan?

Some lenders won’t allow for you to bundle all the costs (legal, set up, etc.) into your mortgage, so it’s important to know if you will be expected to pay these fees up front, or if you can pay them incrementally as you pay off your private loan.

  1. How long are the terms? Are they adjustable?

Each financial institution has their own term policies. You should not plan to carry a secondary mortgage debt for longer than a year or two, but you should have a good idea of how long you have to pay back your mortgage. You should also find out if you can leave your loan early or extend the terms.

  1. Can I see your references?

That’s right. In cases concerning private mortgage lenders, you can ask them to provide references. You should not subjugate yourself to a disreputable institution, despite it not being insured. There are several non-insured institutions that are willing to give you financial support and have a long track record of helping regular people reach financial stability such as Canadian Association of Accredited Mortgage Professionals (CAAMP), Independent Mortgage Brokers Association (IMBA), or the Financial Services Commission offered by your province.

Need to know more? Our private mortgage brokers are more than happy to help, contact us.