What is a private mortgage? A private mortgage is a mortgage
contract in which the lender is not a registered financial institution.
Instead, the lender may be a friend, family member or an individual
Banks have strict guidelines surrounding their lending practices. This limits their ability to lend for certain scenarios or borrower profiles. As some borrowers may be marginalized through lending guidelines, private mortgages are used to meet those unique scenarios. Situations where a borrower may require a private mortgage inlcude financing for:
an individual who can’t prove their income by conventional means
home renovation or construction projects
debt consolidation or recovery from bankruptcy
income tax, property tax or mortgage arrears
unique properties including cottages.
are several benefits to the borrower and investor in a private mortgage.
For the borrower, the private mortgage can be an excellent alternative when a suitable bank mortgage is impossible to obtain. Reasons why a borrower may require a private mortgage include: need for a second mortgage, poor credit, arrears, financing on properties that institutional banks may not consider prime, cases where an individual has recently gone bankrupt or just can’t prove their income. A private mortgage however, should never be a long term strategy for a borrower, as the interest rates tend to be higher and do not always have the features and flexibility that institutional mortgages offer.
In Ontario, anybody can lend money through a mortgage. You don’t have to be a bank to lend money. It's possible for anyone to offer a private mortgage so long as it is arranged through a licensed mortgage broker. For the investor, private mortgages are an attractive investment vehicle which provides monthly income. In addition, mortgages are negotiable instruments which can be assumed, renegotiated, and transferred as needed. All the while the investor is protected by the security of the real estate on which the mortgage is registered.
Regardless of whether you are a borrower or an investor, a knowledgeable mortgage broker specialized in private mortgages is necessary to arrange the mortgage or find a suitable investment opportunity.