What Is A Private Mortgage Loan?

A private mortgage is an alternative source of financing given to a borrower by a private lender, and is usually sought after when a traditional bank or lending institution will not approve a borrower for a mortgage or a home refinance loan. They are usually short-term interest-only loans ranging from 6 months to 3 years. At Clover, our experienced mortgage agents specialize in finding the best private lender who will offer you the right option for your needs and specific financial situation.

Private lenders understand that the guidelines used by the banks and other traditional lending institutions are too stringent, and that in many cases banks turn away borrowers who are perfectly capable of paying back their mortgages. Unlike banks, private lenders place a larger focus on the value and over condition of the property, instead of simply looking at the borrower’s credit and income.

A borrower will often try getting a mortgage or refinance their property by making contact with their bank first. These days this is a hard feat to accomplish. If their banks turn them away due to bad credit, high debt that may be in arrears, low income, or other issues, then they would contact a mortgage broker and try to get approved at an alternative lender, also known as a B lender, through the services of a professional mortgage broker.

A B lender would charge higher rates than a traditional institutional lender, but the fixed rates will still be lower than in a mortgage from the private sector. Examples of B lenders include trust companies and certain credit unions. If the borrower has a severe problem with their credit and is declined by a B lender, they would then turn to one of many private mortgage lenders that are accessible through your Clover Mortgage agent and broker for a short term private mortgage.

A 1 year term is most common when it comes to a private mortgage. If this is a problem for you and a shorter or longer term might be a better choice, those types of private mortgages are available through certain mortgage lenders who lend using their own private funds. Terms start from 6 months for a private home loan and can be as long as 3 years for a private first mortgage, second, or third mortgage depending on the lender.

A private mortgage is an ideal short term solution for someone who almost qualifies at a B lender but might need some time to either build up their credit, save up a larger down payment, or grow their income and net worth. In this case, private is the way to go.

Unlike traditional lending institutions, private mortgage lenders lend primarily based on the value of the property, the equity remaining in the real estate, and they even take into consideration the city where the property is located in.

Do Private Lenders Need To Be Licensed In Ontario?

Not all lenders need to be licensed. Private lenders such as individuals, a group of individuals, or a corporation. Those individuals or groups, depending on the circumstances, do not have to be licensed to lend their personal funds for mortgages in a larger city such as Toronto, Ottawa, Ontario, or most other parts of Canada.

Why Turn To A Private Mortgage Lender?

There are many reasons why borrowers require the help or a private lender. Here are some of the most common reasons why you would turn to Clover Mortgage for a private mortgage :

  • You need the money quickly and are not able to go through a very long approval process and risk not being approved.
  • You have poor or bad credit and a bank or conventional lending institution won’t approve you.
  • You have an untraditional way of declaring your income, or you are self employed and the bank is not considering all of your income.
  • You are buying a non-traditional property that a conventional bank or institutional lender will not give a mortgage for.
  • You only need a short term loan.

Types Of Private Mortgage Lenders

Here are the 3 most common types of private lenders:
Individual lenders: When an individual is investing their own personal money towards private lending, they are considered to be an individual lender.
Syndicate investors: When a group of investors invest their personal funds as a group into one mortgage, it is considers a syndicate mortgage.
Mortgage investment corporation (MIC): When a group of investors pool together their personal funds and make them available to invest into several different mortgages at simultaneously, provided that the borrowers meet specific criteria to qualify for the loan, this is known and a Mortgage Investment Corp.