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Understanding Mortgages: Private Lenders Vs. Big Banks

How Banks Differ from Private Lenders in Ottawa When It Comes to Securing A Mortgage

If you’re in the market for a new home or property, but you’re having trouble getting approved by a bank, you might want to consider working with private lenders in Ottawa instead. Private lenders are investors or groups of investors who provide private mortgages to people who would otherwise have trouble securing a mortgage with a bank.

But first, some background: you need a good credit rating, proof of a steady income, and a low debt-to-income ratio to qualify for a mortgage from a bank. People who don’t meet the strict mortgage requirements at banks might give up on their dream of buying a home or income property.

Thankfully, there are alternatives! When looking for a mortgage, consider going through a mortgage broker to find the best rates from private lenders in Ottawa.

Private lenders base the loan amount on a property’s value and marketability. Since there is no insurance on private mortgages, private lenders rely on the ability to sell a property in the event that a borrower defaults on the mortgage payments. So, if a property’s market value is good, or has the potential to generate a good profit, then private lenders are more likely to approve a mortgage, as they are taking on less risk with a marketable property.

Mortgages from Big Banks

  • Some of the lowest mortgage rates on the market;
  • Strict loan qualification guidelines, ensuring borrowers are less likely to default on mortgage payments;
  • Loans are typically long-term, and can be spread out between 5 to 35 years.
  • Strict requirements, including a down payment, proof of income, and a good credit score.

Mortgages from Private Lenders

  • There are no rigid requirements—private lenders and borrowers can agree on their own terms;
  • The loan qualification process is less complicated and takes less time;
  • Quick financing, with as little as three days to secure a mortgage loan;
  • Interest-only payments are possible to help with monthly cash flow;
  • Chance to rebuild poor credit; and
  • Chance to qualify for a lower mortgage rate once you have made multiple payments on time.
  • Potentially higher interest rates;
  • Typically short-term loans;
  • The property’s marketability needs to be proven; and
  • Borrowers will need to create a realistic exit strategy.

While interest rates may start higher, private lenders will often offer a lower rate, or your mortgage broker can help refinance to a lower rate once you have shown a good repayment history. When it comes to mortgage rates and terms, a mortgage broker works to find you the best options for your financial situation and needs.

When You Should Opt for Private Lenders

Because of the flexibility offered by private lenders, there are actually many situations that make private lenders a good fit for financing a property. You should consider working with a mortgage broker and private lender if you:

  • Want to invest in an income property—either a rental or a commercial property;
  • Want to refinance your home or property;
  • Only need a short-term loan using your home equity;
  • Are self-employed, and cannot prove income to big banks;
  • Do not have proof of a sufficient steady income—i.e. much of your income is from bonuses, commissions, tips, etc.
  • Have a poor credit rating; or,
  • Cannot be approved for a mortgage with a bank.

If you’re ready to buy a home or income property, don’t let bad circumstances get in the way. Working with mortgage brokers and private lenders in Ottawa may be the best route for you to secure a mortgage, build up your credit, and own that home or property you’ve been patiently waiting for.

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