What the heck is a Private Mortgage…and when are they appropriate?

There has been a lot in the news recently about the increase in demand for private mortgages. In fact the topic is so relevant right now that the regulatory body for Mortgage Agents and Brokers has changed the licensing requirements to create two levels of Agent.?Anytime you can get a quasi-governmental agency to move quickly indicates there may be potential for a growing problem

As of April 1, 2023 we Mortgage Agents will have to take a special course, and pass an exam, to be able to call ourselves Level 2 Mortgage Agents and be able to deal in private mortgages.

Remember I’ve talked about the differences between “A” Lenders, “B” Lenders and Private Lenders.?But let’s dig a bit more into Private Mortgages.

Basically a Private Mortgage is one that is not specifically regulated under Federal or Province regulations. Some specific examples of this are:

·????????An individual may lend their money in order to get a higher rate of return

·????????A group of people may form a syndicate to provide mortgage financing

·????????Someone selling their home may hold a mortgage to facilitate the sale

The common elements to this include: the desire on the lender’s part to get a higher return on their capital…which translates to a higher cost to the home owner, more freedom to set their own rules (within limits), potentially less rigorous requirements on the mortgagee (i.e. higher debt service ratios)

So intuitively this says there is more risk in private mortgages than with other more regulated lenders. So you see why it’s important for me to get better educated.

In my mind there are three very distinct areas where private mortgages make sense:

·????????A short term solution while you restore your credit rating

·????????For construction or extensive renovation of a property

·????????When you are in the process of establishing your employment history

The common feature in these is they are for a short, fixed, time period.?Because the fees and interest rates are higher than conventional mortgages it is important you not be locked in for a long period of time.?In fact if this is a solution we are exploring together we will need to have a solid exit plan to get you into a more stable lending situation.

Please do not think of private mortgages as an alternative to other lenders.?That would be like thinking of credit cards as income sources…and you know that’s a horrible idea.

If you find yourself in a place where this is your last resort, a licensed Mortgage Agent, Type 2, can show you what options you have to get or keep your home.

I’m Steve Willson, licensed Mortgage Agent Type 2, in Ontario.?The views here are my own and are intended to provide general knowledge.