Private Mortgages (PMs) are always a good option for a 6-24 month term investment option. In this BLOG we are going to give you the 101’s on private lending from a lender’s point of view and why we invest in this product.
Why Borrowers Go Private?
While there are many other options for borrowers- banks, credit unions, alternate lenders etc. there’s a few reasons why a borrower might need a private mortgage.
Income Qualification– Some borrowers may have difficulty meeting the income qualifications if they are self employed, commission based or even hourly. PMs offer flexibility with income qualifications as they have the ability to go outside the typical income guidelines.
Credit Score– Many borrowers on the PMs side have flawed credit. This could be do to a number of reasons but the bottom line is they don’t qualify on the bank or alternate side.
What Does a Lender Need To Know?
How to Determine the Loan Amount. This is one of the most important part of the deal to pay attention to!
The maximum most private lenders will go to is between 75%-80% loan to value. This means the borrower has enough equity in their property to allow for the PMs. They must also be able to service this loan. Can you go higher as the lender? Absolutely, but keep in mind you are now moving into riskier territory.
How Much Will It Cost Me?
Actually, it shouldn’t cost you anything. Borrowers pay all the fees and costs to obtain the mortgage. They will be paying the legal fees, appraisal fees, lender fees and sometimes even broker fees. Keep in mind if you are using your RSP’s or locked in funds, you might be subject to admin fees from the Trust Company.
Who Determines the Interest Rate?
The interest rate is determined by a number of different factors, relative to the risk. The riskier the deal the higher the rate. Some factors to consider would be; “What is the Loan to Value?”, “What is the credit score?”, “Is their income stated or salaried?”. Typical lender rates range from 10%-15% again, based on the risk and term.
The Bottom Line
Private Mortgages are a medium risk investment. It is best to partner with an individual who understands how to assess the risk and has the platform to view credit reporting, current liabilities and lending ratios.
Reach out to us if private lending is of interest to you.