Private Mortgages Are Also Bridge Loans
Most private mortgages are bridge loans by definition in that they are for a short period of time, typically only for one year in duration, and have a finite end point.
While both consumers and business owners may use a private mortgage as a primary source of financing if they have bad credit and/or can’t provide proof of repayment, the best potential use of private mortgages is to complete a real estate transaction within a short period of time. Once ownership is achieved, the borrower will be able to take more time to secure longer term financing options that can retire the private loan.
One of the key characteristics of private mortgages is the speed in which one can be put into place. In some cases, private lenders can get a mortgage in place in a matter of days, especially if there is a financial incentive for them to accelerate the process.
To provide a comparison, a traditional mortgage will typically take 10 business days to close once a mortgage commitment has been issued and signed back. With a private mortgage, if the deal is straight forward and easy to verify, some private lenders can get everything done and funds issued in less than a week.
Because private lending sources are typically individuals working through their own business lawyer, and focused on placing their own money, both decisions and administration related to mortgage registration and disbursement can get completed much faster than an institutional mortgage lender.
Even though the cost of speed can be significant, if the deal you’re trying to close is highly profitably or has the potential to generate significant returns over time, then paying a high placement cost may end up being trivial in the big scheme of things. Too often individuals are unsuccessful closing deals within tight time requirements because they are overly concerned with the short term cost of money versus the overall amount of money they may lose or miss out on earning if the deal falls through due to a lack of available funds.
And even if you have lined up a cheaper source of capital that will satisfy your requirements into the long term, if there are any delays in securing the funds, you could still run out of time and lose out on your deal.
In many ways, private mortgage loans can be the ideal bridge loan for many potential deals. The key decision is whether to use private funds as an initial financing choice to get the deal closed, versus a contingency plan that you will call on to rescue a deal if traditional sources of financing are slow to emerge or get closed.
If you have a deal that requires a private mortgage, I recommend that you give me a call so that I can quickly provide available options for you to consider.
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