Conventional mortgages are not for everyone. Sometimes a private mortgage is the best or only way to finance the property of your dreams. Private mortgages are tailored to the needs of the individual. They come all shapes and sizes. Most importantly, private lenders are more concerned with the value of the property that will secure the loan than in the credit rating of the lender.
Private mortgages are short term loans. Typically, they run for terms of between six months and three years. They are also interest only loans. The interest rate on a private mortgage will be higher than you’ll pay on a conventional mortgage. The higher interest rate reflects the higher risk to the lender.
You will also have to pay closing fees for the loan. You should budget for between 1% and 3% for these fees, but most lenders will include the fees in the mortgage. You will also need a down payment of at least 15%.
A private mortgage is the best fit for you under the following circumstances
- You have a low credit rating and have been turned down by a conventional bank
- You are self-employed or working off commission and have difficulty proving your income
- You plan to buy an unconventional property that the banks won’t finance
- You need the money quickly to take advantage of an investment opportunity.
Applying for a private mortgage is quick and easy. Private lenders do not have to wade through the bureaucracy common amongst the bigger institutions.
Your private lender will help you with an exit strategy because at the end of the term you should be in a position to pay back the capital amount and refinance through a cheaper conventional loan.