Private Lenders Ontario – How to Use Them
By : Edi Marinescu
What are Private Lenders?
Private lenders are either a single person, group of people, or financial entities working independently of provincial or federal regulations, like banks, credit unions, and trust companies do. For this reason, private lenders can make loans and provide mortgages to borrowers that may not qualify with traditional institutions.
What Can Private Lenders Offer in Ontario?
There is a wide variety of lending available through private funds:
- First mortgages
- Second mortgages
- Poor credit mortgages
- Home equity loans
- Hard money loans
To offer access to these types of loans to borrowers in need, many private lenders in Ontario pair up with mortgage brokers. If you have been turned down by the banks while seeking a mortgage and do not know where to turn, book an appointment with one of our qualified and experienced mortgage brokers to get you started on your road to success. A reputed mortgage broker can explain the variety of loans available to you, the conditions you may qualify for, and the category of lenders that may suit your wants and needs.
A qualified mortgage broker could also assist you through the steps and conditions necessary for being approved for a mortgage loan with a private lender in Ontario, by helping you gather the documents they require.
Since private lenders in Ontario are not bound to any provincial or federal requirements, they may select their conditions to be fulfilled by the borrowers, so working with a mortgage broker could serve you two-fold in understanding exactly what you are signing up for, to avoid any miscommunication or surprises down the road.
Private Lending Parameters
Compared to traditional lenders and their requirements, private lending is slightly easier to qualify for. In the majority of cases, private lenders in Ontario seek to offer funds on properties where at least 25% of the equity has been paid off. To make it simple, equity refers to the percentage of the property value that is owned, without a debt registered against it. For example, if you own a property with an appraised market value of $1,000,000 and your total mortgage owing is $600,000, then you have 40% equity in the property.
Appraisals are an important aspect of the approval process as private lenders want to ensure their lending risk is suitable. The fees of the appraisal can either be rolled into the set-up fees for your mortgage loan or paid up-front. To determine the maximum loan amount that you can qualify for, it is general practice for the private lender to obtain an up-to-date appraisal of your property’s value on the market. Where the general minimum required equity for residential properties is 25% when it comes to commercial properties the minimum required equity is 35%.
Private lenders in Ontario concentrate on the property market value and already existing debts before deciding whether to approve a mortgage application or not. Financial institutions often use credit score, employment history, and income to determine the suitability of borrowers for lent-out funds, whereas private lenders can lend to borrowers with good or bad credit without much need for verification of income and employment. These lenders typically care about the loan-to-value (LTV) ratio of a property to determine whether their investment is worthwhile.
LTV is obtained by dividing the value of existing mortgages on the property by its appraised market value of it. For example, a property appraised at $1,000,000 with $800,000 in existing mortgages would not qualify for a private loan at 80% LTV. The general rule with private lenders in Ontario is for the property to offer an LTV of 75% or greater.
Why? Because private lenders in Ontario are interested in the existing amount of equity available in the property. This means their risk is covered in case the borrower defaults on their payments. A higher LTV only indicates that the borrower has already taken on a significant amount of debt against their property, so if the borrower defaults there would not be sufficient equity available for the private money lender to recover their funds.
As mentioned earlier, employment history and income verification are not crucial to obtaining a private loan, however, they play a decisive role in the conditions available for financing if employment is steady and if financial stability is proved through a credit check. Paying your debts on time, investing efficiently, and budgeting accordingly may be the tipping point in obtaining a lower interest rate and better terms when requesting a loan from a private lender in Ontario.
Why Would You Resort to a Private Lender?
This is a great question and private lenders in Ontario often prefer you answer this as thoroughly as possible too. Here are some of the reasons we have encountered:
- To liquidate a high-interest debt
- To pay off home renovations
- To replace income after a work layoff
- To stop a foreclosure
- To pay tuition fees for college or university
- To avoid consumer proposals or bankruptcy
The most visited reason is to consolidate high-interest debt that has been accumulated either through other mortgages, a HELOC, credit card debt, student loans, or a mixture of them. Since these liabilities are owed to different creditors, keeping track of payments can become burdensome in the long run. A mortgage obtained through a private lender in Ontario could be plenty to cover your outstanding debts individually while owing one single creditor instead of multiple creditors. Many of our clients find this solution to be a more proactive way of budgeting their debt.
The next most visited reason is the inability of qualifying through an institutional lender and being in need to finance the purchase of a home. Private lenders in Ontario can save the day by offering the funds necessary for the borrower to qualify when their conditions are not up-to-par according to traditional lenders. Sometimes parents benefit from private loans by gifting their parents their down payment through a private loan.
Keep In Mind
Private lenders in Ontario can prove to be an efficient resource when you require an alternative to obtaining funds when conventional methods are no longer an option, but you want to tread carefully. Your most important goal is to know what you want to achieve in real estate and work with a team of professional mortgage brokers, like us at Mortgage Capital Investment, to assist you in aligning with that version of you who prospers from having vested time in learning how to build wealth.
Contact us today and we would be glad to find your options for your investment plan.
Lowest Residential Mortgage Rates in Canada*
|Term||OUR RATE||Bank Rate|
|3 Year Fixed/ 25 yrs||3.89%||4.39%|
|3 Year Variable/ 25 yrs||2.60% Promo||3.36%|
|5 Year Fixed/ 25 yrs||4.29%||4.59%|
|5 Year Variable/ 25 yrs||2.65% Promo||2.99%|
|5 Year Fixed/ 30 yrs||4.79% Promo||5.29%|
|5 Year Variable/30y||3.20%||3.70%|
Updated: June 22, 2022
* Current promotion rates may provide an additional 0.05% discount or may be anytime discontinued at the Lender discretion . Rates may vary between geographic regions and the posted rates on this website may not be available in your area. Please contact our MCI office for more details and current promotions.
LOWEST REGULAR RATES IN CANADA* * Current promotion rates may provide an additional 0.10% discount. Rates may vary between geographic regions and the posted rates on this website may not be available in your area. Please contact our MCI office for more details and current promotions.