Key points:
- There are four big reasons a person might need private mortgage financing: Debt consolidation, tax arrears, to stop a power of sale, and bridge financing
- In general, we don’t recommend private financing for first-time buyers, due to the high fees associated with it
When is private mortgage financing an option?
In this video, I want to discuss the main reasons why a person might consider private mortgage financing. Just like any other form of financing, a private mortgage isn’t always the best option. It’s important to understand your situation, and whether it matches the circumstances where private financing is a smart move.
You can also review the complete private mortgage guide for more detailed information!
Don’t feel like watching? Find the full transcript below!
Chris: [00:00:00] In this video, we’re going to review the four most common reasons why somebody needs a private mortgage. Let’s go.
Debt consolidation
Chris: [00:00:18] Number one. Debt consolidation and credit rehabilitation. Life can be tough sometimes – it doesn’t go exactly as planned. There’s so many reasons why you might struggle to keep your debt in check, pay it down. It can snowball and accumulate very quickly, and debt just begets further debt. So one of the most common reasons for securing a private mortgage is to consolidate that debt. By consolidating with a private mortgage, we can eliminate all the debt that reports on your credit bureau so you can start to recover your credit score. And the best part is is that private mortgages do not report on your credit bureau, which is very helpful.
Tax arrears
Chris: [00:01:05] Number two are tax arrears. So with a private mortgage, you have the ability to catch up on property taxes or even personal income taxes. Approaching a traditional lender with tax arrears may be very problematic. And in general, institutional lenders will not finance tax arrears. So with private mortgages, we have the ability to pay off Revenue Canada or your local municipality, get the taxes up to date, which would then put you into a stronger position to approach an A lender and get everything consolidated.
Power of sales
Chris: [00:01:49] Number three is to stop a power of sale action against you. If you are in a situation where your first mortgage lender is looking to go power of sale, to force the sale of your home and you’d like some time and space to have the dignity to sell it on your own, a private mortgage may be suitable for you to pay out the arrears, allow you the opportunity to perhaps fix up the home, to put it on the market on your terms and get top dollar for it. So we very often find that a private mortgage may be suitable for you in a situation like this.
Bridge financing
Chris: [00:02:32] The fourth and final most common reason for private mortgage financing is bridge financing. There might be a situation where equity is tied up in your home and needs to be released. The timing doesn’t quite work out. It could be because you’re buying another property or buying a business or some other financing need, and you need to connect Point A to Point B. So through a private mortgage, we can release equity tied up in your home to provide financing short term until such time as you can sell the property and then pay out the mortgage.
When to avoid private financing
Chris: [00:03:11] As a bonus at the end, I’m going to talk to you about a circumstance where private mortgage financing isn’t necessarily suitable, and that is if you are looking to purchase your first home and struggling to qualify for a mortgage at a bank or an institutional lender. Private mortgage lenders may not be the solution for you because they carry high fees, high interest rates, and you can get yourself into trouble. So in general, we do not recommend private mortgages for circumstances like that. Perhaps some savvy investors may leverage if they’re looking to flip property, but in general, as a home buyer, you don’t want to go down the route of securing private financing for your home purchase.
Chris: [00:03:59] My name is Chris Molder. I am a Toronto-based mortgage broker. For the last two decades, I’ve been helping borrowers just like you navigate the world of private mortgages. If you have any questions or concerns, I’m just a phone call or an email away. Until next time.
Need more help or information?
I encourage you to check out the complete private mortgage guide on my website, where I cover all aspects of this type of mortgage financing.
I can help you determine if private mortgage financing is right for you. I’m just a phone call or email away. You can book a call directly into my calendar below, or get in touch with me here.
