The Benefits of Working with a Private Mortgage Lender

1 August 2023 By: devonjones0 comments

Canadians use private mortgage lenders for various reasons. There is a stigma with private mortgage lenders that they are used only by people with bad credit. More and more Canadians have been using private mortgage lenders since the introduction of the B20 Guideline and, later, the stress test, which made it harder for borrowers to qualify for a mortgage. To that end, Canadians with excellent credit but not enough income to be eligible for a traditional mortgage ended up getting a private mortgage.

What is a Private Mortgage Lender?

So, what are private mortgage lenders, and how do they differ from traditional banks or credit unions? This blog post will explain the basics of private mortgage lending, the benefits of using a private lender, and why you should use a mortgage broker to find a reputable and reliable private lender.

Private mortgage lenders can either be a Mortgage Investment Corporation (MIC), regulated by a mortgage licensing body in the province(s) they are licensed, or individuals that lend money to borrowers who may not qualify for a conventional mortgage from a bank or credit union. They typically charge higher interest rates and fees than traditional lenders. However, they also offer more flexibility and faster approval times. Private mortgage lenders can lend money for various purposes, such as buying a new home, refinancing an existing mortgage, renovating a property, or investing in real estate.

Benefits of using a Private Mortgage Lender

One of the main advantages of using a private mortgage lender is that they have less stringent criteria for approving loans. They rely on something other than credit scores or income verification as much as banks or credit unions do. Instead, they focus on the value and equity of the property used as collateral for the loan. Borrowers with poor credit history, low income, or irregular employment can still get approved for a private mortgage loan.

Another benefit of using a private mortgage lender is that they can provide faster and more convenient service than traditional lenders. They can process and fund loans in days or weeks rather than months. They also have more flexibility regarding the loan terms and conditions, such as the repayment schedule, the interest rate, and the fees. They can tailor the loan to suit the borrower’s needs and preferences.

Using a private mortgage lender also has some drawbacks and risks. One of the main disadvantages is that they charge higher interest rates and fees than traditional lenders. The rates and fees can make the loan more expensive and difficult to repay in the long run. Before deciding, borrowers should carefully compare the costs and benefits of using a private mortgage lender versus a bank or credit union.

While the provincial mortgage licensing body provincially regulates MIC’s, individual private lenders are less regulated. Private mortgage lenders must offer loans through a mortgage broker with a code of conduct to adhere to by their provincial licensing body mandates that their lending practices resemble traditional lenders. That means similar disclosures, consumer protection, or fair lending practices as conventional lenders, which should protect the borrower’s interest. This code of conduct ensures that borrowers using private lender funds have recourse and protection if they encounter problems.

Private mortgage lenders are an alternative source of financing for home buyers or renovators who may not qualify for a conventional mortgage from a bank or credit union. They offer more flexibility and faster service than traditional lenders but charge higher interest rates and fees. Borrowers should weigh the pros and cons of using a private mortgage lender carefully by using a qualified mortgage broker and consult a lawyer before signing any contracts.

• Private Mortgage Lender