Private Mortage Lending Continues To Evolve
“A Private Mortgage Loan Can Actually Be Your Preferred Mortgage Option In Many Situations”
You may not even realize this, but private mortgage lending is actually a growth market for lenders looking for a more secure investment than the stock market and its unpredictable ups and downs.
And while there are certain applications for private money where the interest rates can be quite high, there are also many scenarios where the interest costs of a private mortgage are only slightly higher than a conventional bank mortgage.
The term hard money is basically applied to private funding and typically refers to very high interest rate private mortgages. But high interest rates always relate to high risk and if someone chose to accept a high interest rate private mortgage it was likely because their wasn’t anything else available for the property in question.
With more and more private money coming into the market, many privates are also organized around mortgage corps and act and appear more like banks.
Over time, privates have also split off into two groups. There are the more traditional private lenders that will lend on real estate that they are prepared to own in the event of default and will take on borrowers with more risky financial and credit profiles. They are prepared to deal with a default and are very focused on the future market value of the land.
The second group, while also prepared to liquidate land in order to reclaim their funds in the event of default, are more interested in the borrower’s potential exit strategies and look more to mortgage requests where there is a higher probability that the borrower will be able to sell or refinance by the end of the mortgage term.
For this second group of private mortgage lenders, because the quality of the overall deal in terms of lender financial and credit profile are stronger, their rates also tend to be lower.
As an example, its definitely not unheard of to see a commercial bank lending rate for a property be only 2% lower than a private loan rate.
Many privates are now offering longer mortgage terms as well. While, for the most part, private mortgages are for one year terms, there are cases where lenders are prepared to invest in a property longer term and are content with getting an annual interest rate. Some of the longer term private mortgages even offer mortgage amortization and principal repayment.
As traditional lenders continue to tighten up their lending policies during the current recession, private mortgages become more of an option that can also be cash flow affordable as they tend to only require interest only payments.
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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