Interest rates are still rather unstable in Canada, but at the same time, housing is a necessity. If you are contemplating a home purchase, you are weighing your options regarding financing. One of the issues to consider is whether to pursue a traditional loan or opt for a private mortgage.
Either of these are appropriate, depending on your preference and circumstances. A traditional loan is one financed by a typical source like a bank, alternative lender or a credit union. They have a firm set of guidelines and regulations that are under the oversight of the federal government. A private loan is offered by a person or company that determines its own criteria.
Advantages of Private Mortgages for Non-traditional Borrowers
Obviously, if you are having difficulty qualifying for a conventional mortgage, a private mortgage can be very enticing. Private lenders can provide a mortgage to someone with poor credit or similar issues. They can also finance someone who is self-employed and may have difficulty convincing a bank of their financial stability. This can be quite a benefit.
A private mortgage often takes significantly less time to process. With a financial institution, there are many forms to complete, lots of documentation to dig up, and a series of approvals to garner. A private lender does not generally have that type of structure. It will only take one or a few persons to review your request and make a determination. That is why this lender is preferred when there is an emergency, last-minute opportunity, or the need for a quick closing. The funds are also released more quickly, making turn around a dream.
You would not need to pass the stress test to be approved.
A private lender is more likely to consider the property as part of the approval equation. If it is a reasonable deal in a fairly good neighborhood, and the borrower has the apparent ability to cover each month’s interest payment, the deal is likely to be approved.
Understanding the Costs and Terms of Private Mortgage Agreements
There are some downsides, including a higher interest rate. In addition, the broker will add a fee, and there could be ancillary charges along with it. Most loans from an institution will be for a period of 5 years and could be amortized over 25 to 30 years. A private arrangement is most likely to be short term like 12 months with the possibility of renewal. The loan is typically, interest only which means no principal is repaid during the duration of the loan.
There is no denying that Canada is in a mixed economic situation with the need for affordable housing for so many residents but with high-interest rates, making that a very difficult prospect for many people.
If a private lender is one of the options you are seriously considering, you should discuss your personal situation with a professional who can help you make the right decision. A good place to start is with easyhouseloan.ca. They have the expertise to help you evaluate the pros and cons and be able to assist you in the most reasonable decision possible. They also have access to a wide range of lenders and can help you find the best combination to make you the best deal possible.