Private Loans in Ontario

By : Edi Marinescu

Why You Can Consider Private Loans in Ontario

A private loan is money borrowed through a friend, family member, private investor, or a business, instead of being borrowed from an institutional mortgage lender. Private loans in Ontario are loans often given out to individuals who cannot qualify based on typical means of qualification. This type of loan can be the only option for borrowers who are facing difficulties in proving their income, the source of their down payment, or in obtaining the necessary documentation to qualify traditionally.

If properly executed, a private loan can benefit the borrower who finds themselves in a challenging situation. However, the outcome can be quite an obstacle to overcome if you are not committed to the risk level required, which may compromise your finances and your relationship with your mortgage broker if terms do not go according to plan. Take precautions and make an informed decision before choosing a private loan.

Reasons to Obtain a Private Loan

Typical lenders usually require plenty of documentation up-front to verify the borrowers’ financial position and oftentimes, it is not to their liking. Although you may be able to repay the loan, if your financial situation does not prove it, you will not be able to obtain a private loan the typical way. This is not the case with private loans in Ontario, as it is much easier to qualify a borrower based on individually assessed risk and slack offered by the investor reflected by the interest rate.

The main reason for you to consider private loans in Ontario is if your credit score is under 600. A Lenders (Major Banks and financial institutions) and B Lenders (non-directly regulated lenders) often require a minimum credit score of 600 to prove creditworthiness. A low credit score can result from many factors that are no longer part of your current living or financial situation and ought not to add unnecessary stress to your qualification.

Since private loans seem to have gained a partial reputation of having higher than normal interest rates in the market, the truth is that private loans in Ontario can come with competitive interest rates, depending on the investor or the lender.

Also, if you are a self-employed business owner, it may be difficult for you to produce business records for the past two years, especially if you have not owned the business for that long. Private loans in Ontario can be obtained with proof of income for a shorter period of time, thus being a solution to a problem that would otherwise require you to wait until 2 years have lapsed.

If you are a newcomer to Canada, your chances of qualifying with a traditional lending institution are slim as they require a personal and financial history for the past 24 months, on average. Even if your records would be up to their standards, coming up with 35% of the property value may be a challenge and your only option would be a private mortgage.

If you have a foreign source of income, the same difficulty of a large percentage of a down payment being required would apply (sometimes up to 50% loan-to-value). Private loans in Ontario may be the only viable option for this type of borrower, without adding the hassle of expensive legal fees or lengthy documentation requirements.

If you want to switch homes and have not yet sold your current home, you may find yourself in a low liquidity situation, and obtaining a bridge loan may be the ideal option for you. This can be secured through a private loan.

Some lenders do not provide second mortgages as long as the mortgage in the first position is held by less reputable financial institutions or non-institutional lenders. Private loans do not come with the same requirement attached to them and can be the solution in this case as well.

Mortgage Brokers Can Mitigate Risk for a Private Loan in Ontario

We recommend working with a mortgage broker as private loans do carry more risk. Oftentimes, these types of loans are given to people who the major lenders are not willing to assist. Although the private loan interest payments may be higher than in a regular mortgage product, we often advise refinancing as soon as your credit score has improved. This helps you get approved and start building equity in your home, which provides you with more leverage for other projects to bring you closer to your desired lifestyle.

Since we specialize in mortgages, there may be a lender available who will take on your case without you having to use a private mortgage, if your financial situation is to their liking. Since the stress test requirements are not as strict the moment we move away from A lenders, different opportunities can still arise to finance your real estate loan through a regular B product or a product from the alternative space, without having to use a private loan.

If you are finding your situation to be denied by a major institutional lender and consider obtaining private loans in Ontario to bring your project to life or to finance your property, contact us at Mortgage Capital Investment to explore your options. We are a team of licensed brokers who can help you find a private loan for you with suitable terms and desirable outcomes for you to enjoy the opportunity it brings.

Lowest Residential Mortgage Rates in Canada*

Term OUR RATE Bank Rate
3 Year Fixed/ 25 yrs 5.14% 5.39%
3 Year Variable/ 25 yrs 4.85% Promo 5.10%
5 Year Fixed/ 25 yrs 5.19% Promo 5.49%
5 Year Variable/ 25 yrs 4.95% Promo 5.09%
5 Year Fixed/ 30 yrs 5.54% Promo 5.89%
5 Year Variable/30y 5.45% 5.69%

Updated: October 27, 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.

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