Private Mortgage
What is a Private Mortgage?
If you find yourself in a situation where a traditional mortgage may not be the best option for you, a private mortgage could be worth considering. Private mortgages are offered by individuals or companies and do not have to adhere to the same regulations as traditional lenders. It’s important to note that private mortgages typically come with higher interest rates and fees, so it’s essential to discuss your options with a knowledgeable mortgage agent before making a decision. Traditional lenders, such as chartered banks, credit unions, and Canada’s Big Six Banks (RBC, TD, Scotiabank, BMO, CIBC, and National Bank), are federally regulated and must conduct a mortgage stress test to assess whether you can afford mortgage payments if interest rates rise. Some provincially regulated institutions also conduct a stress test despite not being required to. At our company, our mortgage agents are available to help you understand the differences between traditional and private mortgages, and assist you in making an informed decision.
What Happens If A Stress Test On A Mortgage Fails?
The mortgage stress test is a crucial step in obtaining a mortgage from traditional lenders, such as banks and credit unions. This test ensures that you will be able to make your mortgage payments even if interest rates rise. However, even if you meet all other criteria, such as a good credit score, you may fail the stress test, which could result in a declined application. Private mortgage lenders, on the other hand, are not required to conduct a mortgage stress test, which means that they may be a viable option if you are unable to qualify through traditional means. Our mortgage agents can provide you with more information on private mortgage options and help you understand if this is a suitable choice for your unique circumstances.
Mortgage lenders are categorized into 3 types of lenders
1. A Lenders – Banks:
A lenders will require you to provide proof of the following with minimum standards in place:
- Income
- Credit score of a min of 680
- Down payment 20%
- Condition of the property
2. B Lender – Credit union and secondary Banks:
B lenders will require the same information and document and conditions as A lenders however they typically have higher interest rates:
- Income
- Credit can be as low as 500
- Down payment 20%
- Condition of the property in major market
- Higher interest rates than A lenders
3. Private Lenders:
Private Lenders require the same documentation as the other lenders however the conditions to be met are lower but the interest rates are higher:
- A minimum 10% down payment
- Condition of property
- Higher interest rates
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