Private Mortgage A Better Option?
“Is It Possible That Sometimes A Private Mortgage Is A Better Option Than A Bank or Institutional Mortgage?”
A private mortgage can most certainly be a better option in some situations.
One of the most common scenarios is with a commercial or industrial property that requires mortgage financing.
While a bank or institutional mortgage will certainly provide you with a lower interest rate, there can be considerable other costs that can be required by the lender before any commitment or funding is provided.
These days its a given that any commercial or industrial property will require a third party phase I environmental report from a recognized environmental consulting firm as well as a recently completed property appraisal from an AACI appraiser.
Depending on the property and its prior use or its location, a phase II environmental audit may be required right off the hop.
Then, if the borrower is self occupying the building, operating financial statements may need to be prepared by the accountant, perhaps to the level of review engagement.
All these things cost money, and in many cases quite a bit of money in addition to the time it takes to get everything completed and back to the lender for review.
While a private mortgage lender could also ask for all these things as well, in many cases there can be substantially less cost incurred to third party verifiers, making the private mortgage option less expensive if you calculate an effective interest cost for the transaction with all costs included.
At the same time, a private mortgage may also not be a long term commercial mortgage financing solution as most private lender do not provide funds for more than one year with the maximum time available no greater than 5 years. That being said, if you’re tight on cash flow right now, its going to be more cost effective and cash flow friendly to get all the bank or institutional requirements done over a period of time, when it makes sense to get everything done, versus being buried under all the costs at the outset of acquiring a property.
The other situation where a private mortgage is going to be a better option is when time is short for closing. While the bank may be able to provide a cheaper option, it doesn’t do you any good if its going to take longer than you have to close the deal.
And depending on the circumstances, not closing can be very expensive and significantly more expensive that getting a private mortgage in place quickly and getting the deal closed.
If you’d like to discuss private mortgage options for a residential or commercial property you need to finance, give me a call and I’ll quickly assess your requirements and provide relevant private mortgage funding options for your consideration.
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