A private mortgage is a type of loan that's mainly given by private lenders, as opposed to the banks and credit unions. However, more and more private-type mortgages are being offered by financial institutions these days, so there's no longer really much of a difference between the two types.
Private mortgage rates are usually higher than those you'd find with a regular bank, because private lenders generally have less money available to lend. This means they need to charge interest rates that are higher in order to make a profit. A private mortgage won't be right for most people, since it can take longer to get approved for a private mortgage loan and the interest rate is likely to be much more than you'd pay by going through a bank.
A private mortgage will usually have a shorter amortization period than a typical home loan or could be completely interest only, which can also add a lot more interest to the total interest load. An amortization is just how long it takes for you to pay off your mortgage loan. It's based on the total amount of money you borrowed and how much interest you'll pay over the term of your mortgage. A private mortgage will have an amortization period that's usually between 0 and 20 years, whereas a bank loan will probably be 25 to 30 years long at most.
Private mortgage lenders can also charge fees such as lender fees, private mortgage interest and private mortgage loan registration. The lender will send you a breakdown of these fees in the form of a mortgage commitment. If you have arranged a private mortgage through a mortgage brokerage, there will also be broker fees.
Private mortgages can be closed or open. If they are closed, this means you cannot prepay the mortgage within the term, and if you break it earlier than expected, you will have to pay a mortgage penalty. If you choose an 'open' private mortgage, you can pay off the loan at any time without a penalty.
Since private mortgage lenders are not banks but usually individuals or corporations, they adhere to different laws. This is important for issues such as non-payment or delinquency. Whereas a bank may require the payments to be at least three months in arrears to launch a power of sale, a private lender could launch one as early as being a month in arrears.
Although a private mortgage can be expensive, it can also be the perfect short-term financing solution for a person who cannot approach a major bank or B lender for mortgage financing.
It's best to speak with a specialized mortgage professional who can guide you to the right private lender. Since major banks don't deal directly with private lenders, mortgage brokers would be your best option for information.
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Sarah A. Colucci, Senior Mortgage Agent
Mortgage Edge, Broker 10680/Direct: 647-773-4849
By: Sarah Colucci
Senior Mortgage Agent, Lic. M14000929
411 Queen St.
15 Wertheim Court, Suite 210
Richmond Hill, Ontario
Sarah A. Colucci, Mortgage Agent Lic. M14000929
Mortgage Edge, FSCO Lic. 10680