Private Mortgage Interest Rate Variation
“How Much Rate Variation Is There Among Private Mortgage Lenders For Similar Properties?”
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.
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