What you need to know about private mortgages.
Consumers who are unable to qualify for a traditional mortgage from banks and credit unions may need to turn to private mortgages for financing. If this is your case, remember that private mortgages are supposed to be a short-term solution. It can be easier getting a private mortgage, but you may face higher interest rates and fees along with additional conditions or restrictions.
Before getting a private mortgage, be informed of the following:
- A private mortgage is a temporary option for one or two years until your finances improve.
- You need an “exit strategy” to leave the private mortgage and return to a traditional lender.
- Private lenders will often give you a mortgage based on the value of your property instead of your income.
- In many cases you are only paying the interest on a private mortgage. This means you’re not actually paying off any principal.
- Always work with a FSRA-licensed mortgage professional who will help you understand the terms and conditions of a private mortgage.
Here are some questions to ask your broker or agent when considering a private mortgage
- Why are you recommending a private mortgage and not a traditional one?
- Why is this the best private mortgage for me and my family?
- What are the terms of the private mortgage? Length of the loan, interest rate, repayment schedule, etc.
- How much time do I have to run this mortgage contract/agreement by my lawyer, partner or advisor? What are my obligations after I sign?
- What happens if I’m late on my payments or if I can’t make a payment? Could I lose my house?
- If I still can’t qualify for a traditional mortgage at the end of the term, will the lender offer a renewal?
- What costs and fees can I expect now, during the course of the loan and at renewal? How are these determined, and how are these paid? Will these fees impact my loan amount?
- Will I be able to get a traditional mortgage in the future?
- What happens if I’m late on a mortgage payment or can’t refinance?