Private Mortgage Sticker Shock
“The Cost Of Private Mortgage Financing Can Be Surprising For Some Applicants”
The cost of private mortgage financing can come as a shock, especially to those individuals that have never had to consider private money funding before.
In almost all cases, private mortgage interest rates are going to be higher than anything provided by a bank or institutional lender, and most of the time the rate is considerably higher.
For instance, where a conventional bank mortgage rate for one year may be at or around 3%, a private mortgage rate for one year can range from 7% to 11%, depending on the lender’s assessment of risk and competitive interest in the deal.
The reality is, however, that private mortgages are priced where they are priced for a reason.
The interest rate reflects the risk to the lender.
If there was all sorts of opportunity for a bank or institutional lender to place these primarily equity based mortgages at lower rates, they would in a minute.
But for those individuals and entities that fall outside of the lending requirements of a bank or institutional lender’s “A and B” lending programs, it can be a considerable fall to private money.
So yes, private money does come at a higher cost.
But it also serves a very vital role in the mortgage financing market place, providing short term credit for those with some sort of cash flow and/or credit distress, as well as providing bridge loans for transactions or capital requirements that do not afford enough time for conventional bank financing, even if the borrower would otherwise qualify for it.
There can also be a considerable range in private money pricing with the best rate available coming within two to three percentage points of conventional rates.
And the longer a borrower in some form of financial distress waits to get financing in place, the more likely they are going to fall into the higher end of the rate range.
When considering private mortgage financing, the focus should be less on the interest rate and more about the costs you are going to be facing if you don’t get mortgage financing in place.
In situations of mortgage default or foreclosure, losing your home or your home equity is likely a significantly higher cost than any private mortgage.
In situations of bad credit and debt consolidation, private mortgage rates are a bargain compared to the credit card balances you might be trying to get rid of.
And if you’re trying to save a real estate deal or generate capital for either a revenue generating or cost saving action, the cost of interest on a private mortgage may very well pale in comparison to the lost profits or incurred costs from not having funding in place by a certain date and time.
Once you have exhausted all your bank or conventional lending options, a private mortgage is likely your next best choice.
The cost is relative to the alternative.
Many times private mortgage interest rates can turn out to be a bargain compared to the alternative.
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