Why You Might Choose a Private Mortgage?
A private mortgage is exactly what it sounds like. It is a mortgage (home loan) that is offered by a private company or individual rather than one that is offered by a major bank or traditional lender. In most cases, the interest rate on private mortgages will be higher than the interest rate on a traditional mortgage. This is because, the loan is usually considered higher risk.
So if the interest rate is going to be higher, why would anyone choose a private mortgage? Well, there are several reasons.
Private Mortgages are Shorter Term
While most mortgages sold in Canada today are five-year mortgages, private mortgages are often only one or two years. A private mortgage might therefore make sense if you are only planning to keep the property for a short amount of time.
It might also make sense if you need a year or two to repair your credit, but you are ready now to purchase a home.
You Have Poor Credit
If you have poor credit, you likely won’t be able to qualify for a mortgage from a traditional lender. There are many private lenders, however who specialize in helping people with poor credit.
If you have poor credit, you can use a private mortgage as a short-term solution to repair your credit and then apply for a traditional mortgage at the end of your private mortgage term.
You Are Self-Employed
In the mortgage industry, being self-employed can be a disadvantage. If you have numerous tax deductions, it lowers your income on paper which can make it harder to qualify for a traditional mortgage.
As is the case for those with poor credit, there are also private lenders who specialize in helping entrepreneurs get mortgages.
You Are New to Canada
Like entrepreneurs, new immigrants to Canada may have trouble proving their income here and they may not have much of a credit history. Applying for a private mortgage is one way they can achieve their dream of Canadian home ownership.
You Want to Buy a Non-Conventional Property
Did you know that there are some types of home that banks won’t give mortgages on? If you are thinking of buying a non-conventional property such as a tiny home, you may have to make use of a private lender.
If you are interested in learning more about private mortgages, contact 1ONEFUND Financial today.