Many homeowners throughout Ontario remain in search of an experienced private lender to help them finance their mortgages.
No matter what a borrower’s specific financial situation may be while looking for such solutions, the main goal is unanimous among all householders: to profit from significant equity gains, and tap into the wealth created from their precious property.
With that being said, homeowners may be wondering whether a private loan in Ontario is even the right option for them, especially if a loan from the bank is not feasible.
We wrote this article to help ease your concerns about private lending practices in the province, and to provide some clarity regarding whether this common financing option is right for you.
Options for Private Lending in Ontario
It’s normal for Ontario homeowners to feel overwhelmed while exploring the various mortgage lending options that are available.
By learning about the three main categories of mortgage lender types, borrowers can get a clearer idea about which type of loan will be most suitable for them. The three main categories of lenders are:
A lenders: An A lender is the type of lender that banks classify as such. As the lender with the most strict lending criteria, borrowers must complete meticulous mortgage stress tests that have historically become more difficult to pass due to the tightening of mortgage rules. Banks also require near-perfect credit scores, along with a low debt ratio and clearly demonstrated and significant household income.
B lenders: A B lender is the type of lender that trust companies and credit unions classify as such. While these lenders don’t require credit scores to be as high as bank lenders do (credit must be above 550), there is still a preference for household incomes that are easily demonstrable.
C lenders: Finally, a C lender is the type of lender that private lenders classify as such. While these lenders will typically charge higher rates when compared to A lenders, they are far more flexible when it comes to negotiating private mortgage financing, even for borrowers with poor credit and/or unstable income (such as freelance or contract-based work, or self-employment).
If a borrower is struggling with poor credit, then the best route to take may be a private mortgage loan until they can restore their credit back to health. On the other hand, if a borrower has an income that is particularly difficult to calculate, then they may also benefit from private mortgage financing.
Depending on a homeowner’s individual financial situation, private mortgage lenders may offer:
- Short-term mortgage financing, which is generally a duration of 1 to 3 years.
- A quick private loan negotiation, generally within 1 to 5 days.
- Using the borrower’s property to leverage the loan against.
- Overlooking credit issues in particular cases.
Calculating Private Loans in Ontario
A private mortgage loan is calculated by taking a homeowner’s existing home equity measured from a current home appraisal, the location of the property, its general condition or state (assessed for issues such mould, water damage, etc.), in addition to the overall loan-to-value (LTV) ratio.
Private lenders tend to prefer that a borrower has a minimum of $70,000 in existing home equity. According to these lenders, the golden standard when calculating your loan-to-value ratio should be to a maximum amount of 75% LTV. This represents a green light to lend as much as 75% of the appraised value of your home.
Understanding Private Mortgage Rates
For borrowers that meet the stricter criteria of having a substantial and demonstrated income, a low debt ratio, and an impressive credit score, a bank will be able to provide competitive mortgage rates. Borrowers with less-than-ideal credit, however, can seek approval for mortgage financing through the services of a private lender, but will need to make peace with paying slightly higher rates.
More specifically, rates charged by private lenders generally range from around 7% to 12%, depending of course on a homeowner’s individual financial situation. At Canadalend.com, though, private mortgage rates start as low as 3.99%.
Moreover, private lenders will typically charge fees that represent between 3% and 6% of the complete loan cost, which (fortunately) include administration fees in addition to other costs necessitated by the lender.
Can Ontarians feel safe about seeking private lenders?
It’s common for borrowers in Ontario to have concerns regarding rules and regulations around private lending practices. The good news is that homeowners can rest assured that private lending in Ontario is regulated under the Ontario Mortgage Act, where the rules and laws apply to every type of lending, including the world of private lending.
A lender does not need to be licensed if he or she is offering mortgage lending independently. However, any mortgage broker specializing in private lending, such as the experts we work closely with at Canadalend.com, will generally be licensed.
Private mortgage lending is not only a safe financing solution for homeowners in Ontario, but is also an economically sage choice. Any borrowers with credit problems can take advantage of this financing alternative to help restore their credit, thus increasing the likelihood of achieving additional and suitable mortgage financing in the future.
Ready to start borrowing from a trusted private lender?
The most preferred method of securing a private lender is through a mortgage broker or lending specialist such as Canadalend.com. Our team of mortgage lending experts completely understands the average Ontario homeowner’s concerns and needs when it comes to financing property, and we’re here to help make the process run as smoothly as possible.
At Canadalend.com, we work alongside a number of private investors and lenders who successfully assist our clients with private mortgage financing every day.
To learn more about our financing options, or to begin your mortgage application, call Canadalend.com at 1-866-I CAN LEND or contact us here.