A private mortgage lender’s return on investment is based on the interest rate charged as well as any lump sum lender fees due on closing.

For the purposes of today’s discussion, I’m going to focus on the interest rate range that is charged for both private first mortgages and private second mortgages.

So let’s start with the interest rate you can expect to earn from placing private 1st mortgages.

For investors that are most comfortable with first mortgage positions only, the interest rates charged will most likely range from 7% to 12%.

These rates will be relevant to both residential and commercial property financing scenarios with the actual interest rate offered and charged directly relevant to the risk assessed by the lender.

The majority of mortgages that we place are in the 8% to 8.25% range.

For someone to provide a 7% private rate, there would have to be excellent equity in the property, providing a low loan to value to the lender or investor.

The higher rates are associated with higher risk scenarios including financing for construction projects.

Private Second Mortgages Demand Higher Rates

If you’re looking to invest in private 2nd mortgages, the rates are going to be higher and will most likely fall in a range of 8% to 15%.

The majority of seconds that our office place are in the 9% to 11% range, but we also place deals all through out the range mention above for 2nd mortgages.

Once again, where the equity is very high and the loan to value low, a private second can be secured in 8% to 9% range.

The higher end of the 2nd mortgage interest rate range is going occur in situations where the loan to value is getting into the 80% to 85% range.

The higher ratio private seconds are not common among lenders and investors and our own office does not place many deals where the loan to value is at or above 80%.

Lower risk loan requests also attract more lenders and the resulting competitive pressures can push interest rates to the lower end of the range.

For each lender that we work with, we spend time discussing their expected rate of return as well as the types of properties they’re comfortable with so that return and risk can be properly matched up.

Unrealistic expectations on pricing can result in weak deal flow as some of the available financing opportunities will fall to lower priced competitors.

If you’d like to get more information on private lender rates of return for either first mortgages and/or second mortgages, then I suggest that you give me a call to discuss rates and returns further as well as your lending and investing objectives.

The post Private Mortgage Returns first appeared on Toronto Mortgage Broker.

Today I want to talk about why you need to use a good mortgage broker when investing in private mortgages.

In my opinion, having an experienced broker is crucial to getting the return on capital you’re looking for and here are the main reasons why.

First of all, you want a broker who originates a fair bit of business and can provide you with the deal flow necessary to place your money in deals that are going to fit your criteria.

Not all deals that come along are going to be of interest to you for whatever reason, so you want to have a source of deals to choose from so that 1) you only place funds in deals you’re comfortable with, and 2) you aren’t waiting long periods of time in a cash position waiting to find a mortgage to invest in.

Deal And Risk Assessment

The second reason for using a good private mortgage broker is take advantage of their ability to do proper deal and risk assessment.

For almost any private mortgage that ends up losing money or even losing part of the original capital, the loss event could likely had been avoided when the deal was first assessed and risk of loss was analyzed.

Proper representation will uncover all the relevant facts about a particular deal most of the time, which allows you as a private mortgage lender to make better assessments of the deal so that any related offer you make to the borrower is not going to put you in a loss position down the road.

Private lenders want to clearly understand the reason why a mortgage request is seeking private funds. This doesn’t mean they won’t lend money if a few blemishes exist. But it does mean that the advance rate, cost, and terms are going to fit the deal according to the risk of loss it presents.

A experienced mortgage broker will be focused on providing you all the relevant information for the deal so that you know exactly what you’re getting into. And through experience, he or she is also going to know what to look for versus some one with less experience with private lending and investing.

Excellent Closing Process Skill Set

Once you have reviewed an application for funding and put out an offer to finance, then the next step is closing the deal.

This is another key area where a mortgage broker can add significant value to the process.

While some may think that once the deal gets to the point of closing, there isn’t much work left to do. But in many cases, the work is just getting started.

The mortgage broker is a facilitator of the closing process, making sure that all involved parties are completing their part to get the mortgage in place. This can mean working with appraisers, environmental consultants, accountants, property managers, and of course lawyers to make sure not only that all the lender requirements are being met, but also that any problems or issues are dealt with swiftly so that the deal doesn’t fall apart unnecessarily.

There is art and science to the closing process and having someone representing you that has done a lot of private mortgage closings is certainly a benefit to your private mortgage investing activities.

Click Here To Speak With Toronto Mortgage Broker Joe Walsh

The post Mortgage Broker Support first appeared on Toronto Mortgage Broker.

Today I want to talk about how an experienced mortgage broker can help private lenders and investors manage risk and preserve their capital in the process.

As private mortgage brokers, we are continually completing risk assessments on deals for financing and placing the deals through one or more of our private mortgage lenders.

And in a perfect world, all the payments are made on time once the mortgage is funded and there never is any issue with the borrower right through to and including the repayment of the mortgage in full.

But unfortunately we do not live and work in a perfect world and sometimes, despite our best efforts, there can be issues and challenges with a private real estate loan or mortgage that’s been put into place.

In a perfect world, we try to avoid foreclosures and collection actions as much as possible, and for the most part we are highly successful in this regard.

But when problems with repayment do occur, the conservation of capital comes right back to the risk assessment.

What that means is that we are always looking to fund deals in liquid markets.

So for instance, larger urban cities of one million people or larger will always provide a market for liquidation.

Where liquidity is lower due to factors such as smaller market size, we compensate for that through the loan to value that can be provided.

An example of an unexpected default scenario is in the case of a divorce where there is lots of equity in the property, but both sides are at odds with each other and no one is making the mortgage payments.

When a default does occur, in many cases the mortgage broker will do all the coordination related to repayment, relying on the strength of his or her risk assessment to either facilitate getting the borrower to get the mortgage back on track, or facilitate the foreclosure process.

In either event, the worst case scenario for the lender is that they may not get their capital back in the initial time period outlined in the terms of mortgage, but they will get all their money back in time due to the equity in the property and the liquidity in the market.

A proper risk assessment will allow broker and lender to preserve capital regardless of circumstance due to the legal rights afforded by mortgage security laws.

As I mentioned earlier, there may be some time inconvenience in getting capital and the required return back, but within a matter of months capital will be returned to the borrower.

As a mortgage broker, I work closely with each of my private mortgage lenders to understand their lending criteria and risk tolerance so that any mortgage they enter into has a risk assessment that properly matches with their lending goals and risk preferences.

If you would like to learn more about how we conserve lender capital through mortgage risk assessment, then I suggest that you give me a call so we can have a discussion and get all your questions answered in the process.

Click Here To Speak With Toronto Mortgage Broker Joe Walsh

The post Broker Risk Assessment first appeared on Toronto Mortgage Broker.

A private mortgage almost by definition is a bridge loan in that 90% plus of all private mortgages issued each year are for a term of one year.

So the short term nature of the instrument falls into the realm of bridge financing.

But as a source of bridge loans, private mortgages arguably hold the top rung in the ladder for a number of different reasons.

First, bridge loans that are not secured by real estate will typically have a more exhaustive lender assessment process as well as a loan administration process to protect the lender from risk of loss.

Remember that a bridge loan has a defined beginning and end and the source of funds or event that will provide the source of funds to pay out the bridge financing has been validated.

So when the lender has to depend on certain things happening in order to be assured that the bridge loan will be repaid in full and on time, more work has to go into the risk assessment and management process.

Bottom line, other forms of bridge financing are going to take longer to get into place. And when you’re really under the gun for time, its not uncommon to be able to get a private mortgage in place in less than a week provided you have everything in order to getting the deal closed quickly.

Second, as far as bridge financing goes, a private mortgage is likely going to be one of the cheapest, if not the cheapest, sources of bridge financing available to you.

Bridge loans for transactions like purchase order financing can command interest rates of 3% a month or higher along with lender and broker fees. In comparison, private mortgage interest rates are considerably less.

Third, private mortgages require you to pay interest only mortgage payments each month for the most part. You stay in control of you cash flow and as long as you are servicing the debt, the lender is not likely to be interfering in your business.

With other forms of commercial bridge loans, the lender can require considerable controls over cash flow and spending during the time the bridge loan is outstanding. These restrictions can make it difficult to manage other financial requirements you may have at times.

Because of the security being provided through the equity you hold in a real estate property, the private mortgage lender can act quickly, provide a reasonable rate, and stay out of your business when offering short term financing.

Click Here To Speak With Toronto Mortgage Broker Joe Walsh

The post Private Mortgage Bridge Loans first appeared on Toronto Mortgage Broker.

With all the changes coming into effect for mortgage lending from institutional lenders, more and more borrowers are considering alternative lending options from “B” lenders and private lenders.

More specifically, the changes to mortgage regulations cutting back insured mortgages to 85% of the property value for insured mortgages and the discontinuance of mortgage insurance on home equity lines of credit, have started moving lenders from “A” lending products to alternatives down market.

For instance, most private mortgage lending for second mortgages to provide incremental capital, primarily for debt consolidation of some sort.

Traditionally, an “A” profile lender would go to the bank and get an insured mortgage product to provide the additional capital required either in the form of a new first mortgage, a standard term second mortgage, or a home equity line of credit.

With the rule changes, individuals are not going to be able to secure the same level of financing and may turn to private mortgages instead to get funds in place faster, even at a slightly higher cost.

The same can be true to some of the lending products now being offered by secondary institutional lenders who are still governed by the recent rule changes, but are providing different lending products to generate greater overall leverage, which is the key issue for people looking for additional mortgage financing.

While most private lenders are reluctant to go beyond 75% to 80% loan to value on a first, there are those that will go as high as 90% on a smaller second, especially when the borrower has “A” credit and good cash flow.

Add to this the speed in which a private mortgage can be completed, and a case can easily be made to now consider these forms of “alternative mortgage financing” if you can’t otherwise qualify for enough financing from your bank or primary institutional lender.

Once again, this is not going to generate any type of mass shift in the market, but for those individuals who 1) what maximum leverage against their home equity, and/or 2) don’t have the time to go through the bank process which may see they qualify at a lower amount anyway, alternative financing options or the down market has now become more attractive to lower risk lenders.

If you would like to explore alternative financing options to maximize your home equity mortgage financing, I suggest that you give me a call so I can quickly assess your requirement and provide relevant mortgage options for your consideration.

Click Here To Speak With Toronto Mortgage Broker Joe Walsh

The post Secondary Mortgage Lenders More In Vogue first appeared on Toronto Mortgage Broker.

There can be a considerable private mortgage interest rate variation among lenders from one lending situation to the next.

How much variation?

Well, some situations, different lenders can be as far apart as 6% on the annual stated interest rate.

There are a number of different reasons why this can occur. Here are some of the more common ones.

First, a private mortgage lender will potentially look at a very broad cross section of properties within a certain financial geography. Banks and institutional lenders in comparison only look at a slice of the market where there is considerable competition that leads to competitive pricing. As a result, a private lender may be able to price their mortgage rates at their own desired cost of financing versus what the is perceived to be the market price. Even if their may be other private lenders in the same area that would offer lower on the same property, the borrower may not be able to locate them at all or in time to complete their transaction.

Each private lender or private mortgage financing group will have their own financial return target assigned to their portfolio. This doesn’t really have to have anything to do with the market at large. Some individuals, using their own funds can provide private mortgages at excellent rates, many times close to bank rates. When we’re talking about a mortgage investment corporation, they have an internal cost of funds they need to achieve for their investors, so its going to be hard for them to do below their target rate, unless they are substantially ahead on their portfolio return for the year to date period.

What’s also hard is dealing with available rates at a given point in time. At one moment in time, there may be a private lender prepared to provide a 6% interest rate on a property when everyone else is closer to 10%. But if that particular lender does not have any available funds a month later, that rate is also not going to be available from them.

Further, because all private lenders do not exist on a some form of lending network, its impossible to access all relevant sources for a particular deal at a given point in time. But it is possible, based on what I have been saying, to get quotes back that are significantly different one to the other.

That being said, there is competitive factors in the private lending market like any other market. But because of the way privates individually operate, significant differences can exist in interest rates from one private lender to the next at certain times and on certain deals.

Bottom line is that the private mortgage lending market is very fluid and what is the best rate today can be an inferior rate tomorrow.

The key to getting the best available rates is to work with a mortgage broker that has excellent access to private lenders for the area and property type you are trying to finance.

Click Here To Speak With Private Mortgage Broker Joe Walsh For A Free Assessment Of Your Private Mortgage Options

The post Private Mortgage Interest Rate Variation first appeared on Toronto Mortgage Broker.

Toronto Private mortgage options tend to only be available for short periods of time for a number of different reasons.

Unlike a bank or institutional residential home mortgage lender that are prepared to re-issue term sheets or commitments once an offer lapses, a private mortgage lender may or may not choose to reconsider a financing scenario once a financing offer of some sort has gone stale.

As I mentioned above, there can be several different reasons for this.

First, the private lender as an individual only may have a certain amount of funds available to place via private mortgage at any given point in time. If you don’t accept an offer for financing within the time period provided by the lender, they may be out of funds when you’ve chosen to reconsider.

Second, private lending has a lot to do with the personal feel and judgment of the private lender. If a deal does not close, they may sour on it all together and then not be prepared to revisit it at all in the future.

Third, if any of the application dynamics change or if there is a negative change in the local market for the type of property in question, then its less likely that a lender will be prepared to provide the exact same borrowing amount and conditions in the future for a private home equity mortgage.

And while there are lots of private lenders around, locating money when you need it for terms you are prepared to accept can sometimes be a hit and miss situation.

Especially when you’re trying to arrange a bad credit mortgage, the number of private lenders even interested in your request may be few and far between.

So if you’re going through the process to assess private mortgage financing options and you come across an offering that you feel you can live with, don’t expect the offer to last forever for one or more of the reasons given above.

And if you’re pressed for time but still want to try and hold out for a better deal, make sure you can afford the gamble in the time you have to work with other wise you could end up with no options and lose out on an investment opportunity or worse.

Click Here To Speak Direct To Joe Walsh, Your Toronto Mortgage Broker

The post Private Mortgage Options first appeared on Toronto Mortgage Broker.

One of the key benefits of a private mortgage that we don’t speak about a lot is the fact that the mortgage is provided by an individual or small group, and that, for the right price, a commitment to fund can be developed or customized to fit a whole host of situations and circumstances.

Cheaper residential mortgage money provided through bank and institutional lenders is based on mass production lending criteria for the most part, where the requirements are pretty cut and dry, especially for the “A”mortgage business. The goal is to process quickly, close quickly, and build the lending portfolio, which is profitable as a commodity in volume and relatively small margins where the risk of loss is very low.

When a borrower’s circumstances are not straightforward, it can be challenging at times to fit into the world of institutional lending due to the cookie cutter approach they take.

This is where private mortgage financing can be an incredibly valuable tool to acquire residential or commercial financing for a short period of time.

A private mortgage lender has the ability to look at the information on a whole and make their own lending decision, which at times is based on lender experience and market knowledge as much as it is specific lending criteria.

And when a deal morphs in form from the time a mortgage commitment is secured to the time it has to fund, it can be difficult to get a bank or an institutional lender to adapt their commitment or even continue on with the application. While there is no guarantee that a private mortgage lender will always be able to adapt to twists and turns a particular deal may encounter, there is a much better chance that something can be worked out, especially when the decision making is held by one individual versus a larger organization with lots of rules and requirements.

Part of the reason a private mortgage lender can be flexible is that its worth their while to do so. In most cases, any form of customized private mortgage lending solution is going to come at some type of premium. But if the added cost saves a deal or equity from being lost, then the borrower is still better off with a higher cost mortgage, especially if its the only option available in the time the applicant has to work with.

If you have a residential mortgage or commercial mortgage financing scenario that is not fitting into a conventional mortgage program, I suggest that you give me a call and lets see if we can come up with a private mortgage solution for you to consider.

Click Here To Speak With Joe Walsh, Your Toronto Mortgage Broker

The post The Private Mortgage Lending Tool first appeared on Toronto Mortgage Broker.

I’ve written previously that private mortgage lending has become a very popular and growing target for investors to place their money these days. There are too many people with the same sad story about how they gave a stock broker a big pile of money and he turned it into a smaller pile over the last ten years. While the stock market will always be a highly lucrative investment vehicle, it comes with considerable risk of loss.

Many investors, especially those that have lost a few or more dollars, see mortgage financing, where hard security in the form of real estate is involved, a welcome opportunity to invest money.

And just because someone is investing in mortgages doesn’t mean they can’t make very good money. High returns are going to be connected to higher risk, but when you compare risk levels between the stock market and mortgage market there appears to be quite a disparity going on these days. Obviously there will be opinions on both sides of this one, but for many, hard security, even at higher risk is a better approach than buying stocks.

Regardless of the point of view or motivation, more private lenders are coming into the market.

Types of Private Lenders

There are basically three types of private lenders in the market place. The first type or category is the traditional private lender who is an individual investor, placing their money through their lawyer or a combination of mortgage broker and lawyer.

The second category are small groups of individual private lenders that either operate as small self managed investor group or syndicate deals whereby each private lender will take on part of a larger mortgage.

The third category is mortgage investment corporations or MIC’s. These are larger organizations that attract investor funds strictly for the purposes of investing in real estate mortgages. The investors are paid a return on their investment once the MIC’s management fee has been paid out.

How Has Private Lender Growth Impacted The Market?

There are a number of positive benefits to borrowers from the rise in private lending.

First, more private funds are available at a time when bank financing can be hard to secure, providing higher quality deals for privates to consider. For the more conservative private lenders, the rates offered can be very close to bank or institutional rates, providing some interesting short term options for those that may qualify or just fall short of conventional bank financing.

Second, in the past private lenders tended to be very regionally focused around areas where they were situated and had a good working knowledge of the market. Now some of the mortgage investment corps provide regional, provincial, and even national coverage in some cases. And even though individual private lenders are still pretty localized in terms of the opportunities they will consider, there’s a lot more of them out there in total, so more local areas now have access to private funds.

Which Is The Best Type Of Private Lender To Work With?

There is no real answer to this. Its all about choice and the more choice you have the better. At the same time, there can be large disparities from one private lender to another, so its also easy to secure a less than optimal deal for you situation without knowing any better.

The best way to approach securing a private mortgage is to work through an experienced Toronto mortgage broker who can quickly assess your situation and provide you with options for your immediate consideration.

I work with a large number of private lenders and would welcome the opportunity to discuss a private mortgage financing need you may have.

Click Here To Speak Directly To Private Mortgage Broker Joe Walsh

The post Evolution Of Private Money first appeared on Toronto Mortgage Broker.

“A Private Mortgage May Be The Best Solution For Financing A Commercial Property Purchase”

As I’ve previously written, a private mortgage can actually be a primary lending option versus a loan of last resort for those with bad credit.

One of the situations where this can be the case is with the acquisition or purchase of commercial property. Depending on the property and related mortgage lender requirements, a commercial property loan from a bank or institutional lender can take 60 to 90 days to close. And while the seller may be more than accommodating with allowing a subject to financing clause in your purchase and sale offer, it can’t be assumed that the seller will also be prepared to have to wait two or three months for the condition to be waved and the sale finalized.

One alternative is to complete the purchase with a private mortgage. While the cost of financing is going to likely be higher and there will be more closing costs to get this type of commercial mortgage in place, the benefit is that the time it takes to get a commitment and get the deal funded is more likely to work with the time the seller is prepared to give you to arrange financing in the first place.

Then, once the property has been acquired, you should immediately start the process for looking for a long term institutional financing solution to pay out the private mortgage lender. Most private mortgages are for a one year term, so that should give you plenty of time to seek out the best available bank or institutional deal. It also affords you time to make property improvements that can add or strengthen the fair market value of the property, further strengthening your case for a bank commercial mortgage. If there is a business associated with the real estate, the added time can allow you to come and improve the operating results if these results are expected to cover all or part of the mortgage debt servicing.

And while 12 months can seem like a long way away, don’t put off looking for your long term commercial mortgage solution too long as you can end up running out of time a second time. With some private lenders, you may even be able to have the private mortgage open for prepayment after a certain period of time, say at least 6 months, giving you the opportunity to switch over to cheaper financing as soon as possible.

For More Information On Different Commercial Mortgage Lending Strategies, Click Here To Speak With Commercial Mortgage Broker Joe Walsh

The post Using Private Mortgages To Acquire Commercial Property first appeared on Toronto Mortgage Broker.