Reports show that there is an increasing number of homeowners who are borrowing from private lenders in the Greater Toronto Area but are they doing the right thing? Is it safe to borrow from private mortgage lenders?
Why People Are Turning to Private Mortgage Lenders
With banks and large financial institutions having more restrictions these days, it can be very difficult for most homeowners to secure a mortgage loan; thus, the increasing popularity of borrowing from private mortgage lenders. Although private mortgage lenders charge a higher interest rate than a bank (because they take more risks, after all) it can’t be denied that borrowing from them is particularly alluring for those with bad credit or don’t have the luxury of time waiting for bank approval. The question is, are the people borrowing from private lenders making themselves vulnerable to more risks? If so, what are those risks?
New Canadian mortgage rules impose lower limits for what borrowers can borrow based on their income. The new rules do not apply to homeowners who are renewing their mortgage if they remain with their current lender. This suggests that a significant number of those who are choosing to refinance from private lenders are doing so because they need the extra money.
Who Are Borrowing from Private Mortgage Lenders?
Reports indicate that those turning to private lenders are not only those who have bad credit but also include those with great jobs and fantastic credit but happen to be living beyond their means. Because of this, they tend to accumulate debt and need some cash to pay it off. Some are young families who need funds for a renovation because they can’t afford to move to a bigger house. Another group who are borrowing more are investors. This is not just in the GTA, a similar trend is happening in Vancouver.
Why Go to a Private Lender?
Private lenders are not as strict as banks and large financial institutions because they are often private individuals lending their own money or a small group of investors who make their own restrictions regarding who to lend money to and more. Because they are not obliged to follow the same rules as banks, they are able to take riskier loans and thus help out people who can’t qualify for loans with banks under the stricter new mortgage regulations.
Mortgage brokers describe private lenders as a short-term lifeline for borrowers who cannot access other sources of funding so that they can improve their finances through better money management. If used correctly, funds from a private mortgage loan can save lives and also save homes in the process. It can buy enough time to allow someone to repair his or her credit score, pay off some debts, or renovate a home so that it can be sold for higher market value and avoid financial ruin.
Are There Risks Borrowing from a Private Mortgage Lender?
Of course, there are, but they are the same set of risks any borrower may face when borrowing from banks and large financial institutions. Interest rates are higher with private mortgage lenders but that is understandable considering they offer loans to those with riskier situations. They vary in how fast they may foreclose on a home so be sure to read the fine print before agreeing to their terms. Better yet, be sure to find ethical private mortgage lenders in your area with the help of mortgage professionals.
At Homebase Mortgages, we connect you with private mortgage lenders with terms that will fit best with your current financial situation. We aim to make getting a mortgage loan and paying it easier for you. Contact us and let us tell you how.