A private second mortgage is by far the most common form of private lender financing as it is basically the fastest and easiest way to tap into equity of a property where a first mortgage currently is registered.
In most cases, the borrower would prefer not to disturb the first mortgage for a wide variety of reasons.
First, the mortgage interest rate may be very attractive and hard to reproduce in the current market if a new larger first was considered.
Second, even if better rates were available on a new first mortgage, there could be a substantial prepayment penalty to deal with to payout the existing mortgage, making a refinancing not cost effective.
Third, most private seconds are utilized for debt consolidation, so it may not be possible for the borrower to secure a similar first mortgage through refinancing due to strained credit and higher overall debt load.
Fourth, regardless of the borrowers credit and financial profile, there isn’t enough time available to work through an institutional mortgage application for a new first or an institutional second mortgage.
Fifth, the use of money is very short term in nature such as a construction loan and doesn’t justify the time and cost that may be attributed to an institutional refinance.
Regardless of the scenario, private second mortgages have become more popular with borrowers and lenders. From a lender point of view, many private lenders will only provide private second mortgages on residential real estate for total loan to value ratios no greater than 65% to 75%. The loan amounts tend to be small and with loan security less than 75% in most cases, the chances for lender loss are very low. Private lenders that focus on construction financing, typically are providing private second mortgages against the property and may be reusing the funds over two times per year, providing a rate of return above 20% in many cases once the lender fees are taken into consideration.
Like any private mortgage, the key to getting the funding you require in place in the time you have to work with for the rates and terms you’re going to be comfortable with, is to work with an experienced mortgage broker with direct access to private lenders and a track record of placing private second mortgages.
If you need a private second mortgage, please give me a call so I can quickly assess your situation and provide relevant private mortgage options for your immediate consideration.
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