What is a private second mortgage and how does it work?
2020-06-25 Jun 25, 2020
You’re looking at getting a private second mortgage, but you want to know what it is and how it works. It would make sense to get to know who are the best private mortgage lenders in Toronto and Ontario in particular. This is a time when employing the services of a second mortgage Toronto broker becomes an invaluable option. Do read on as we go through some preliminary information to get you better versed in the second mortgage product.
So, what is a private second mortgage?
A private second mortgage can refer to a few things. For instance, it’s financed by a private source such as: a private bank, an individual business, or your family and friends. In short, this means it’s through anyone but, your traditional lender.
So, how does it work?
Let’s break down each category to find out!
A private family mortgage.
We are often told not to lend to family and friends but still, families continue to do just that. Whilst, having a private family mortgage is rare it still does happen.
A private family mortgage is essentially the same as any other private mortgage through a business or bank. The only differing aspect is that it’s with your family or friends.
Though there are more advantages to getting a private mortgage from a family or friend for instance:
- No matter how bad your credit rate is, your family may still give you a loan even if a business/bank doesn’t, benefiting you in the long run!
Now, we’ve spoken about a private family mortgage, I think it’s important we talk about other routes you can take. There’s also another option for families or friends to think about, this is called a “family private reverse mortgage.”
So, what is that you may ask?
A family private reverse mortgage is where an older relative (at least 55 years old) is given a loan that is secured against their home.
Now, we’ve talked a lot about the less traditional methods of private mortgages, so let’s get onto the more traditional ones.
Individual business and Private Bank.
A private bank is a bank that has an individual owner, this means when you provide them with information on why you want a second mortgage and paperwork. They tailor the mortgage to your individual needs and look at your financial needs and personal situation, differentiating themselves from a non-private lender. They usually refer to their product as a home equity loan.
Second Mortgage – How does it work?
Private second mortgages are usually not hard to get, in fact, the rules are much more reasonable than a first bank mortgage. Interest rates are generally higher than a first mortgage to make up for the risk being taken in the second position. Though this is to not say you should opt for a private second mortgage, as not all cases are suitable for this form of a loan, given your financial goals and requirements.
Private second mortgages work similarly to a normal mortgage. You go through the same process, for instance:
- You’ll discuss contingencies and what your monthly payment will be.
- Disclosure of all costs associated with the mortgage including interest rate.
- You will be provided with everything in writing.
Overall, private mortgages are great for tailoring your mortgage specifically to you and have the most benefits in flexibility in certain instances.
Have you got a bad credit history, need a short-term loan for a few years, or require quick second mortgage refinancing options?
If so, then a private second mortgage is great for you. Private mortgages can relieve you of the hassle of finding a suitable lender – especially when you are looking to expand a purchase a second home or property and need quick funding. So, why not contact your mortgage broker and take a further look to see if a private second mortgage is right for you?
