Why You Should Consider Private Mortgage Lenders
By : Radu Arvatescu
Private lenders are corporations and individuals who lend money outside of the traditional structure of banks or large lending institutions. While the private lending industry has an unfair reputation of having higher interest rates, the truth is that rates can be competitive, and private mortgage lenders can offer loans to applicants that traditional lenders wouldn’t work with.
You might need to apply for a mortgage with private lenders in Ontario if you have a low credit score or difficulty proving your financial history. Private mortgage lenders aren’t B Lenders. They are a third and often very valuable option for borrowers.
Reasons to Work with Private Lenders in Ontario
The main reason to work with private lenders in Ontario is that you have a low credit score below 600. A Lenders (Major Banks and financial institutions) and B Lenders (non-directly regulated lenders) typically require a credit score of at least 600 to prove creditworthiness.
A low credit score can be a result of many factors, and none of these may be relevant to your situation today. Old defaults or periods of financial difficulty can significantly damage your credit score.
Because private lenders in Ontario don’t have the same regulations as big banks, they can take on more risk. This risk is usually offset with higher interest rates, but as mentioned these can still be very fair and competitive when you work with a mortgage broker in Ontario.
A low credit score isn’t the only reason to engage with private lenders in Ontario.
- If you are self-employed, or you have an irregular income, you might not qualify for a traditional mortgage. A and B Lenders will require employment history and proof of income going back at least two years before they will even consider offering you a mortgage. Private mortgage lenders can accept proof of income over a much shorter period.
- If you are a recent Canadian immigrant, no matter your personal or financial history, big lenders will require two years of financial history and a large down payment for your mortgage. Some banks require as much as 35% of the value of the home. Even if you had a stellar credit history overseas, you would start from the bottom when looking for a loan in Canada. In this case, private lenders in Ontario will be the best option.
- If you have a foreign source of income, then you may have difficulty qualifying for a mortgage in Canada. The documentation requirements can be significant, and the verification process can be cumbersome and even outright impossible without expensive legal fees. Some banks require huge down payments (as much as 50%) for clients with foreign income that isn’t verified to their satisfaction.
Private lenders in Ontario pick up where the major lenders leave off. They can extend credit to people in these unique situations. Even with the increased interest payments, there is still the opportunity to refinance in the future. The key is that with private lenders in Ontario, you can get approved and start building equity in a home, which will help to secure your finances and your retirement.
Passing the Mortgage Stress Test
Federally regulated A Lenders, like RBC Scotiabank, National Bank, etc. are all required to stress test their clients. The stress test is inflexible. If you don’t meet the criteria and if the bank feels that you won’t be able to afford the loan, then they won’t offer you a mortgage. Even if you meet most of the criteria, failing the stress test will leave you without a pathway forward.
Even B Lenders, who are regulated either by industry standards or provincial regulations, have stress test systems.
Private mortgage lenders don’t have the same rigid stress test systems. They are more flexible in how they look at your finances, your potential as a borrower, and your likelihood of maintaining repayments on your mortgage. This flexibility is what makes private mortgage lenders so popular with people who have been rejected by big banks.
Mortgages with private lenders in Ontario have shorter terms so you can even consider them as special bridge loans as you work toward securing a more traditional mortgage with a better interest rate.
You Need a Mortgage Broker to Engage with Private Mortgage Lenders
Private lenders in Ontario don’t engage directly with the public. They work with trusted brokers to ensure that the proper screening and financial advice is given before the mortgage application.
If you are unable to qualify for a traditional mortgage and want to explore your options with private mortgage lenders, you can start with Mortgage Capital Investment in Ontario. We are a licensed brokerage and can help you to find the right mortgage with the most favorable interest rate for your situation.
If you want the versatility and relaxed requirements that private mortgage lenders can offer, contact Mortgage Capital Investment today. We are mortgage solutions experts and will advocate for you.
Lowest Residential Mortgage Rates in Canada*
|Term||OUR RATE||Bank Rate|
|3 Year Fixed/ 25 yrs||3.79%||4.19%|
|3 Year Variable/ 25 yrs||2.10% Promo||2.86%|
|5 Year Fixed/ 25 yrs||3.94%||4.24%|
|5 Year Variable/ 25 yrs||2.20% Promo||2.75%|
|5 Year Fixed/ 30 yrs||4.49% Promo||4.99%|
|5 Year Variable/30y||2.70%||3.40%|
Updated: May 16, 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.