Sub Prime Versus Private
“When Do You Choose Between A Sub prime Mortgage Offering And A
Private Mortgage Offering?”
If you’re credit rating and profile is pushing you into “B” lender financing options, you may want to consider both sub prime mortgage options and private mortgage options.
The borrower profile where these two segments of the market are the most competitive is when there is both good cash flow and good equity, but weak, poor, or bad credit.
A bad credit mortgage from either of these sources can see the quoted interest rate being very competitive.
Where they tend to vary is when you get into the terms and conditions of the mortgage, specifically the length of the mortgage and the terms related to early prepayment.
With the sub prime institutional mortgage lenders, the programs offered are typically for three years or longer with very little if any opportunity to prepayment without incurring significant penalties.
If you know its going to be several years until you are going to be able to qualify with an “A” mortgage lender, and you’re unlikely to be doing any form of prepayment during the next two to three years, then a sub prime mortgage offering for multiple years may be a very good fit.
On the flip side, private mortgage lenders only offer one year mortgage terms for the most part, which are typically interest only payments compared to the fully amortized programs that many sub prime lenders provide.
With a bad credit mortgage from a private lender, the monthly debt service or mortgage payment is going to lower if you are comparing interest only to a principal and interest payment combination, and there is likely going to be less restrictive repayment penalties.
But even if the prepayment penalties were similar between the two, at then end of a one year mortgage term, the private mortgage is essentially open for full repayment without penalty.
So if you think you can get your credit back in shape in a year or so, you might want to consider a private mortgage term of one or two years, and negotiate a prepayment penalty that is acceptable to you.
While not all private lenders are the same when it comes to prepayment penalties, there are some that stick with a three month interest penalty on amount prepaid, and others that have no prepayment penalty after a certain number of months have passed in the mortgage term.
The key thing to remember in the short term is that interest rate is likely not going to be the deciding factor as both sub prime lenders and private mortgage lenders can be very competitive for bad credit deals where equity and cash flow are strong.
If you’d like assistance sorting through your bad credit financing options, I suggest that you give me a call so we can go over your situation together and discuss the different alternatives available to you.
About the Author Joe Walsh
I'm a Toronto Mortgage Broker that arranges mortgage solutions on residential and commercial real estate property. With over 30 years of mortgage financing experience, I'm able to quickly assess your financing requirements and provide relevant solutions for your immediate consideration. Joe Walsh Google+ YouTube Channel