19 Sep 2019 Private Mortgages
What Is a Private Mortgage?
A private mortgage is a non-bank mortgage, typically funded by investment corporations or private individuals. Private mortgages come in all shapes and sizes, but are generally set up as short-term, interest-only products.
As opposed to institutional lenders like banks, private lenders are not regulated by the Bank of Canada and as such can set their own lending requirements and criteria. This permits private lenders to focus more on borrowers’ assets rather than the individuals who are borrowing the money.
Private lenders typically require similar information as a bank, such as income documents and credit information, however, this is typically to determine a borrower’s best rate rather than qualifying for financing.
The Mortgage Stress Test
Canadian banks are required to follow the guidelines set by the Bank of Canada when determining how to underwrite files and approve mortgages. On January 1, 2018, Canada’s federal financial regulator announced updates altering how Canadian banks can support borrowers. The new “stress test” aims to ensure Canadian borrowers can financially manage should interest rates rise above their contractual rate.
These policy changes have produced challenges for many home buyers in obtaining traditional financing from banks. As Canadian’s overall borrowing capacity has decreased, many borrowers are no longer eligible to leverage the equity in their home, or even buy a home they were previously saving for.
As opposed to the banks, Canadian private lenders are not bound by these new regulations. As a result, many Canadians have turned to private lenders to leverage their versatility. In focusing on borrower’s assets rather than the borrower, private lenders can offset default risks by applying the borrower’s assets as a guarantee.
When to opt For a Private Mortgage?
Private lending may be an attractive alternative for a variety of borrowers and scenarios, including:
Key Differences Between Private Mortgages & Banks
Usually 1 Year
1 Year - 5 Year terms
1st Mortgage - 3.89%
2nd Mortgage - 6.99%
1st Mortgage - 2.79%
2nd Mortgage - Prime
Principal + Interest
Minimal – usually just a property appraisal
Significant + property appraisal
Registering A Mortgage
How Much Can I Get as A Percentage of My Home Value
Up to 90%
Based on the Stress Test:
- Max 80% on Refinancing
- 65-75% on HELOCS
How Quick Can I Get my Money?
As quick as 48 Hours
Typically, 1-2 Weeks
About Rateco Private Mortgages
One of the challenges with private lenders is that there is no “marketplace of rates”; it’s difficult for you to find competitive offers, and traditional brokers typically have a very limited list of private lenders to work with. This lack of transparency means private lenders may not put their best foot forward on pricing for you. That's where Rateco comes in.
Rateco’s live auction drives private lenders to bid against one another for your business. Interest rates, fees, repayment schedules – our lenders compete, creating better options for the borrower.
Our platform empowers borrowers to get better rates and better terms on their private mortgage.