Private Second Mortgage: The Four Most Common Uses
There are basically four scenarios that would best suit the use of a private second mortgage on a residential or commercial property.
The first and perhaps the most common scenario is when the borrower’s credit and/or repayment ability does not allow him or her to qualify for additional financing via an institutional mortgage. Private mortgage lenders do not have the same credit requirements as traditional lenders, allowing them to consider a broader range of credit profiles.
The second scenario is when a borrower with good credit is seeking higher leverage than what an institutional lender is prepared to provide. For second mortgage financing from a traditional bank, the loan to value requirements, depending on the property, application, and lender policies, can range from 60% to 75%.
Again, depending on the property, some private lenders may go as high as 85% of the value of the property for a private second mortgage, providing greater leverage in the process.
The third scenario is where a borrower requires a bridge loan to take advantage of some opportunity or complete an existing transaction where there isn’t much time to work with. In these cases, the additional cost of private mortgage financing is likely far less than the opportunity cost related to not being able to close a transaction on time or at all.
The fourth most common scenario is for construction financing where the primary motivation for using a private second lies in higher leverage and more predictable draw advances. The private mortgage is typically registered behind the first mortgage that was utilized to acquire the property where construction is taking place.
One of the features of a private second mortgage is the speed in which it can typically be put into place. If the property value can be quickly established and the credit profile of the individual is solid, financing can be put in place in a matter of days versus weeks for an institutional second mortgage.
While private second mortgages will come with higher rates than institutional mortgages, they also can be put in place a lot faster, have much simpler credit requirements, and less conditions written into the mortgage commitment.
If you are trying to locate and secure a private second mortgage, I suggest you give me a call and I will quickly outline what options may be available to you.
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