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How do private mortgage lenders work in Ontario?

Summer has arrived in Ontario. As we move outside to enjoy the season, thoughts may be turning towards financing different housing objectives.
Mortgage broker store_July 2021

Summer has arrived in Ontario. As we move outside to enjoy the season, thoughts may be turning toward financing different housing objectives.

Ontario homeowners may require mortgage financing for renovations that have been put on the back burner during the height of the Covid-19 pandemic. Homeowners may also be looking to consolidate debt into one payment to help make monthly mortgage payments more comfortable. Some Ontario homeowners may be eying the possibility of a line of credit using existing equity in their home to help finance summer activities, trips, or upcoming back-to-school expenditures.  

Throughout Ontario, there exists a demand for experienced lenders to help with mortgage financing. Regardless of the specific need, borrowers are looking to profit from substantial property gains throughout 2020 and the first quarter of 2021. Substantial equity gains can offer a homeowner the flexibility to access funds for different immediate financial goals by tapping into the wealth accumulated in their property.

Despite predictions by many in the real estate sector, throughout 2020 and into 2021, during the height of the global pandemic, Ontario housing prices skyrocketed and housing sales also saw tremendous growth. The housing sector, once thought to be one of the most vulnerable sectors to be adversely affected by the pandemic, has turned out to be in overdrive.

According to the June 2021 Toronto Housing Report, the average price of a Toronto Property has increased to 1.1 million. Housing inventory remains limited and what listings do come on the market are snapped up quickly. The average number of days on the market has decreased to just 13 days. Properties are selling quickly and routinely well above the asking price with multiple bid offers.

This housing trend is mirrored in other areas throughout Ontario. According to recently reported numbers in the Sudbury June 2021 Housing Report, the average price of a single detached dwelling has increased to $492,000. This represents a 33% increase in the first quarter of 2021.

Private Lending Options for Ontario Homeowners

It may be a little overwhelming when looking at the various Ontario mortgage lending options. Lending requirements can also vary considerably. In the mortgage industry lenders are generally classified into three broad categories:

  • A lenders- Banks are classified as A lenders. These lenders have the strictest mortgage lending criteria. Borrowers are expected to pass rigorous mortgage stress tests that have become more difficult with the tightening of mortgage rules on June 01, 2021. Banks will require near-perfect credit scores, substantial and easily demonstrated household income, and a low debt ratio.
  • B lenders- Trust companies/credit unions are classified as B lenders. These lenders do not require such high credit scores (credit scores need to be above 550) however easy-to-demonstrate household income, as well as any additional financial assets, are still preferred.
  • C lenders- Private lenders are classified in the mortgage industry as C lenders. There are well-established and experienced private lenders in Ontario who will be able to negotiate private mortgage financing despite poor credit and non-traditional income such as freelance, contract-based, and self-employed. High debt ratios can also be overlooked when approving private mortgage financing.
  • What are Private Lenders Looking for?

If a borrower/homeowner has poor credit a private mortgage loan may be the preferred option until the credit is restored. Those with hard to calculate income may also benefit from short-term and quickly negotiated private mortgage financing. Depending on a borrower's unique financial circumstances, private lenders can offer:

  • Short-term mortgage financing (usually 1-3 years)
  • Negotiate the terms of a private loan quickly (typically within 1 to 5 days)
  • Be able to overlook credit issues 
  • Use your home to leverage the financing against

Private mortgage loans are calculated using the existing equity in your home, based on a recent appraisal of your home, the location of your home, the general condition of your property (assessing any water damage, mold, and other ongoing concerns) as well the overall Loan-to-Value (LTV) calculated.

Private lenders will prefer to see at least $70,000 in existing equity in your property as this will be the minimum amount that lenders will be looking for. When calculating the LTV the gold standard among private lenders is to a maximum of 75% LTV. This will represent the ability to lend up to 75% of the appraised value of your property.

Do Private Lenders Need to be Licensed?

Some Ontario homeowners/borrowers may have concerns over whether there are any regulations concerning private lending practices. In Ontario, private lending is regulated under the Ontario Mortgage Act. Rules about all forms of lending in the Province apply to the realm of private lending. 

If a lender is lending out mortgage financing independently then he/she does not need to be licensed. However, a mortgage broker who can specialize in private lending will likely be licensed. 

Mortgage Broker Store has considerable experience with private lending and can help discuss terms directly as well as recommend private lending options with a vast network of private lenders throughout the Province. 

What Are Private Mortgage Rates in Ontario?

Banks can offer competitive rates. This is made possible by the stringent criteria that they impose and are based on borrowers that have both substantial income, low debt ratios, and near-perfect credit.

Those borrowers that have poor credit will be able to be approved for mortgage financing through a private lender, however, rates will be slightly higher than their bank counterparts. Rates charged by private lenders tend to range from 7% to 12% depending on a borrower's unique financial picture. 

How Much do Private Lenders Charge?

Just as in the interest rates, any fees associated with taking a private loan will be slightly higher than the banks. Generally, fees will represent between 3% and 6% of the total cost of the loan. These fees cover administration costs and related costs to the lender.

Are Private Lenders Safe and How to Find One?

Regulated as all other lenders are in the Province choose to seek private mortgage financing not only a safe option for some Ontario homeowners but a financially savvy one. Private mortgage loans are short-term and negotiated quickly. Those borrowers that have credit issues can use the time of the mortgage term to help re-establish good credit. This will increase the possibility of achieving further mortgage financing down the mortgage path.

By far the most preferred route to find a private lender is through a mortgage broker, although occasionally private lenders will advertise directly. Mortgage Broker Store will be able to advise you as to the best direction, as well as suitable private lenders for your financial needs.

Mortgage Broker Store Can Steer You in the Right Lending Direction

Mortgage Broker Store understands the concerns of the Ontario homeowner. We are continually striving towards finding the best match when looking at your particular mortgage and financing needs. 
We work with a network of private lenders across the GTA and throughout Ontario and are more than happy to guide you in important decisions that you will be making during the lending process. To obtain a bad mortgage loan, feel free to contact us at your convenience. We will steer you in the right direction in your mortgage search