Private Mortgage Lenders in Ontario
Private mortgage lenders in Ontario have always been and continue to be a major source of funds for many mortgage brokers. Until the recent influx of institutional sub-prime lenders into the market, the primary means of financing for borrowers who were declined by banks, trust companies, and credit unions was private mortgage lenders in Ontario. Private mortgage lenders in Ontario typically lend their own money to a property owner, securing this loan by a mortgage.
Most private mortgage lenders in Ontario are sophisticated and have many characteristics that resemble institutional lenders. A private mortgage lender in Ontario will underwrite a borrower’s application based on his or her income and credit, and the property. However, whereas an institutional lender will base its decision primarily on a borrower’s credit, a private lender will base his or her decision primarily on the property.
Mortgage brokering in Ontario is regulated by the Financial Services Commission of Ontario (FSCO) and requires a license. To obtain a license you must first pass an accredited course. The Real Estate and Mortgage Institute of Canada Inc. (REMIC) is accredited by FSCO to provide the course. For more information please visit us at www.remic.ca/getlicensed or call us at 877-447-3642
The process for private mortgage lenders in Ontario work similar to the institutional sub-prime lending process. While these lenders will consider a borrower’s credit, most private lenders will ignore derogatory credit and base the decision to lend primarily, and in many cases solely, on the property and the loan to value of the loan. Most private lenders will not lend above 85% loan to value, except in rare circumstances.
Many well-established mortgage brokers have private lenders with whom they currently deal with and are often approached by individuals looking to lend money.
Private Mortgage Lenders in Ontario – A Case Scenario
Malik Adams has a home valued at $200,000 with a current mortgage of $155,000. Mr. Adams has missed several payments on his mortgage in the past twelve months and is currently three months in arrears. He is currently behind on his two credit card payments and although up to date on his car loan, has missed two of those payments in the past twelve months. His mortgage came up for renewal two months ago and his current institutional lender is refusing to renew the mortgage.
The other institutional lenders he has approached have also declined Malik due to his poor credit and the fact that he is currently in default on his mortgage. Malik’s banker suggested that Malik approach a mortgage broker for the financing, which Malik has done.
In this scenario, the mortgage broker was able to get Malik a mortgage from a private lender for 85% of the property value, which allowed Malik to consolidate his other debts and refinance his mortgage. This mortgage was an interest only mortgage with a one-year term at a rate 3% above current bank posted rates and a lender’s fee of 2% of the total mortgage amount. Because private lenders typically do not pay finder’s fees, the mortgage broker charged a fee of 2% of the total mortgage amount.